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Why the CAPM is Half‐Right and Everything Else is Wrong
Author(s) -
Smith Tom,
Walsh Kathleen
Publication year - 2013
Publication title -
abacus
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.632
H-Index - 45
eISSN - 1467-6281
pISSN - 0001-3072
DOI - 10.1111/j.1467-6281.2012.00387.x
Subject(s) - citation , capital asset pricing model , sociology , computer science , economics , library science , financial economics
The global financial crisis has caused many academics to question the validity of market efficiency and the CAPM.A recent example of this is Dempsey (2013).We pick up on two central tenets of Dempsey’s paper—market efficiency and the status of the CAPM—and provide a critique.With respect to market efficiency, we argue that it is still very difficult to make abnormal returns from publicly available information and thus the basic tenet of market efficiency still holds.With respect to asset pricing models, we argue that the CAPM is still the reigning champion of asset pricing models and the belief that unless a model works 100% of the time that it should be rejected for an unspecified alternative is misplaced. In the spirit of a lively discussion we argue that the CAPM is half-right and everything else is wrong.