CAPM: A Critique
The CAPM is about expected return. If you find a formula that works well in the real markets, would you publish it? Before or after becoming a billionaire?
The CAPM is an absurd model because its assumptions and its predictions/conclusions have no basis in the real world.
Collection: IESE (España)
Ref: FN-622-E
Format: PDF
Number of pages: 32
Publication Date: Nov 21, 2014
Language: English
Description
The CAPM is about expected return. If you find a formula that works well in the real markets, would you publish it? Before or after becoming a billionaire?
The CAPM is an absurd model because its assumptions and its predictions/conclusions have no basis in the real world.
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Learning Objective
The use of CAPM is also a source of litigation: many professors, lawyers¿ get nice fees because many professionals use CAPM instead of common sense to calculate the required return to equity. Users of the CAPM make many illogical errors valuing companies, accepting/rejecting investment projects, evaluating fund performance, pricing goods and services in regulated markets, calculating value creation¿
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"CAPM: A Critique"
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