Multifactor Models Do Not Explain Deviations from the CAPM

摘要: A number of studies have presented evidence rejecting the validity Capital Asset Pricing Model (CAPM). This has spawned research into possible explanations. These explanations can be divided two main categories - risk based alternatives and nonrisk alternatives. The category includes multifactor asset pricing models developed under assumptions investor rationality perfect capital markets. biases introduced in empirical methodology, existence market frictions, or arising from presence irrational investors. distinction between is important for applications such as estimation cost capital. paper proposes to distinguish using ex ante analysis. framework showing that one should expect CAPM deviations due missing factors will very difficult statistically detect. In contrast, resulting sources easy Examination results leads conclusion not whole story deviations. implication this adoption empirically may premature.