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CAPM is alive and well, the / Ravi Jagannathan, Zhenyu Wang.
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CAPM is alive and well, the / Ravi Jagannathan, Zhenyu Wang.
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Title
CAPM
is
alive
and
well
, the
/
Ravi
Jagannathan
,
Zhenyu
Wang
.
Creator 1
Jagannathan, Ravi.
Creator 2
Wang, Zhenyu.
Corporate Author
Federal Reserve Bank of Minneapolis. Research Dept.
Subject 1 (LCSH)
Capital
assets
pricing
model
.
Subject 1 (JEL)
G12
-
General
financial
markets
-
Asset
pricing
;
Trading
volume
;
Bond
interest
rates
Keywords
Capital
;
Stock
prices
Abstract
In
empirical
studies
of the
CAPM
,
it
is
commonly
assumed
that
(a)
the
return
to the
value
weighted
portfolio
of
all
stocks
is
a
reasonable
proxy
for the
return
on the
market
portfolio
of
all
assets
in the
economy
, and
(b)
betas
of
assets
remain
constant
over
time
.
Under
these
assumptions
,
Fama
and
French
(1992)
find
that the
relation
between
average
return
and
beta
is
flat
.
We
argue
that these
two
auxiliary
assumptions
are not
reasonable
.
We
demonstrate
that
when
these
assumptions
are
relaxed
, the
empirical
support
for the
CAPM
is
surprisingly
strong
.
When
human
capital
is
also
included
in
measuring
wealth
, the
CAPM
is
able
to
explain
28
percent
of the
cross
sectional
variation
in
average
returns
in the
100
portfolios
studied
by
Fama
and
French
.
When
, in
addition
,
betas
are
allowed
to
vary
over
the
business
cycle
, the
CAPM
is
able
to
explain
57
percent
.
More
important
,
relative
size
does
not
explain
what
is
left
unexplained
after
taking
sampling
errors
into
account
.
Date-Created
1993-11-22
Date-Digital
2008-11-26
Identifier
19931122fedmwp517
Series
Working
paper
(Federal
Reserve
Bank
of
Minneapolis
.
Research
Dept.)
Publisher
Minneapolis : Federal Reserve Bank of Minneapolis
Format
PDF
Date-Available
2010-03-23
Relation-Is Replaced By
19931100fedmsr165
Relation-Replaces
19930800fedmwp517
Bibliographic Citation
Jagannathan, Ravi and Zhenyu Wang. "The CAPM is Alive and Well." Federal Reserve Bank of Minneapolis. Research Dept. Working Papers, no. 517 (1993).
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