The CAPM is Wanted, Dead or Alive

  • Author(s): EUGENE F. FAMA, KENNETH R. FRENCH
  • Published: Apr 30, 2012
  • Pages: 1947-1958
  • DOI: 10.1111/j.1540-6261.1996.tb05233.x

ABSTRACT

Kothari, Shanken, and Sloan (1995) claim that βs from annual returns produce a stronger positive relation between β and average return than βs from monthly returns. They also contend that the relation between average return and book‐to‐market equity (BE/ME) is seriously exaggerated by survivor bias. We argue that survivor bias does not explain the relation between BE/ME and average return. We also show that annual and monthly βs produce the same inferences about the β premium. Our main point on the β premium is, however, more basic. It cannot save the Capital asset pricing model (CAPM), given the evidence that β alone cannot explain expected return.

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