Faculty Publications

Document Type


Publication Date

Spring 2013


The Capital Asset Pricing Model (CAPM), a cornerstone of asset pricing theory, states that, because company-specific risks (such as a fire in a region where a property and casualty insurance company insures a lot of properties) can be eliminated through diversification, investors should only be compensated for bearing market risk, which affects the entire financial system. While theoretically sound, numerous empirical studies have found that the CAPM fails to predict stock returns.