A look at the quality of CAPM

August 2, 2011

Empirical Finance Blog has a post called “How to use the Fama French Model”.

I find  the first part of the post most interesting.  This shows some examples of how the Capital Asset Pricing Model falls down.  I’ve trashed CAPM before in the form of “4 and a half myths about beta in finance”.

The posts on low volatility investing also exhibit weaknesses of CAPM.

Subscribe to the Portfolio Probe blog by Email

Latest posts

Leave a Reply

Related posts

  • Bear hunting

    December 6, 2010

    When were there bear and bull markets in US stocks since 1950? Smoothing While we'd really like to estimate the expected return at each point in time, finding bear [...]

  • Were stock returns really better in 2007 than 2008?

    November 22, 2010

    We know that the S&P 500 was up a little in 2007 and down a lot in 2008.  So on the surface the question seems really stupid.  But randomness [...]

  • Backtesting — almost wordless

    November 5, 2010

    On Tuesday I gave a talk at the Thalesians entitled "Effective backtesting".  You can get the annotated slides but below is an almost wordless introduction to backtesting. Introduction Figure [...]