The Value Premium: value pricing, or just a flat tire?
Apr 17th, 2007 | Filed under: CAPM / Alpha Theory
Much criticism has been leveled at the venerable CAPM. For example, Thomas Schneeweis, Editor of the Journal of Alternative Investments recently told AllAboutAlpha that:
“The CAPM was devised in 1964. But by the time I got my Ph.D. in the 1970s, we knew that model was not really measurable. It’s amazing how long it’s lived on.”
Behavioral economists have led the revolt against CAPM. Economist James Montier recently called CAPM “Completely Redundant Asset Pricing” or “C.R.A.P.” for short.
In its defense, chronicler of the history of modern finance, Peter Bernstein, calls CAPM-inventor William Sharpe “the most important single influence” in his landmark book Capital Ideas. In a recent interview, Bernstein acknowledges empirical shortcomings of CAPM, but points out its significance: More…
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