Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)

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The Ineffectiveness of Capital Asset Pricing Model and Its Possible Solutions

Authors
Yu Chen1, a,*, †, Chaoyi She2, b, *, †, Qinglin Wu3, c, *, †, Huang Wang4, d, *, †
1School of Accounting, The Agriculture University of Hu Nan, Chang Sha, 410000, China
2School of Management and Economics, Beijing Institute of Technology, Fangshan District, Beijing, 100000, China
3School of Finance and Science, The Chinese University of Hong Kong, Hong Kong, 999077, China
4Department of Business, Hunan Agricultural University, Changsha, 410128, China
†

These authors contributed equally.

*Corresponding author. Email: achenyu079@163.com
Corresponding Authors
Yu Chen, Chaoyi She, Qinglin Wu, Huang Wang
Available Online 26 March 2022.
DOI
10.2991/aebmr.k.220307.017How to use a DOI?
Keywords
Capital Asset Pricing Model; Return Estimation; CAPM Testing; Ineffectiveness; Solutions
Abstract

Capital Asset Pricing Model (CAPM) is one of the most widely used models for estimating returns in the investment world. Many relevant studies have shown that CAPM has different validity in different markets. The ineffectiveness of CAPM does exist according in previous studies. Therefore, this article summarized possible reasons for the ineffectiveness of CAPM, which includes the defects of beta measurement, market portfolio measurement, and three model assumptions. In addition, this paper provided several solutions that may help to ameliorate the negative influence of the defects and increase the accuracy of return estimation, specifically, the robust Least Trimmed Squares (LTS) and Maximum Likelihood type M-estimator (MM-estimator) methods can bring to a more accurate beta, while the Fama-French Model may lead to a more appropriate expected return. It is hoped that this article will help investors to build better investment strategies and provide some reference for the researchers who focus on the study of CAPM.

Copyright
© 2022 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article under the CC BY-NC license.

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Volume Title
Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
Series
Advances in Economics, Business and Management Research
Publication Date
26 March 2022
ISBN
978-94-6239-554-1
ISSN
2352-5428
DOI
10.2991/aebmr.k.220307.017How to use a DOI?
Copyright
© 2022 The Authors. Published by Atlantis Press International B.V.
Open Access
This is an open access article under the CC BY-NC license.

Cite this article

risenwbib
TY  - CONF
AU  - Yu Chen
AU  - Chaoyi She
AU  - Qinglin Wu
AU  - Huang Wang
PY  - 2022
DA  - 2022/03/26
TI  - The Ineffectiveness of Capital Asset Pricing Model and Its Possible Solutions
BT  - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
PB  - Atlantis Press
SP  - 105
EP  - 111
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220307.017
DO  - 10.2991/aebmr.k.220307.017
ID  - Chen2022
ER  -