The Investment CAPM
European Financial Management, Vol. 23, No. 4, 2017, p. 545–603, DOI:10.1111/eufm.12129
71 Pages Posted: 16 Jan 2018 Last revised: 18 Jan 2018
Date Written: March 1, 2017
A new class of Capital Asset Pricing Models (CAPM) arises from the first principle of real investment for individual firms. Conceptually as ‘causal’ as the consumption CAPM, yet empirically more tractable, the investment CAPM emerges as a leading asset pricing paradigm. Firms do a good job in aligning investment policies with costs of capital, and this alignment drives many empirical patterns that are anomalous in the consumption CAPM. Most important, integrating the anomalies literature in finance and accounting with neoclassical economics, the investment CAPM has succeeded in mounting an efficient markets counterrevolution to behavioural finance over the past 15 years.
Keywords: The Investment CAPM, the Consumption Capm, Capm, Asset Pricing Anomalies, Efficient Markets, Behavioural Finance, Aggregation, General Equilibrium, The Joint Hypothesis Problem
JEL Classification: D53, E22, G12, G14, G31
Suggested Citation: Suggested Citation