{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chapter 10 App - Chapter 10 10A-1 Is Beta Dead The capital...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 10 Return and Risk 10A-1 www.mhhe.com/rwj Is Beta Dead? The capital asset pricing model represents one of the most important advances in financial economics. It is clearly useful for investment purposes because it shows how the expected return on an asset is related to its beta. In addition, we will show in Chapter 12 that it is use- ful in corporate finance because the discount rate on a project is a function of the project’s beta. However, never forget that, as with any other model, the CAPM is not revealed truth but, rather, a construct to be empirically tested. The first empirical tests of the CAPM occurred over 20 years ago and were quite sup- portive. Using data from the 1930s to the 1960s, researchers showed that the average return on a portfolio of stocks was positively related to the beta of the portfolio, 1 a finding consis- tent with the CAPM. Though some evidence in these studies was less consistent with the CAPM, 2 financial economists were quick to embrace the CAPM following these empirical papers. Although a large body of empirical work developed in the following decades, often with varying results, the CAPM was not seriously called into question until the 1990s. Two
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern