New Research Tries To Solve For Beta Risk’s “Failure” For Stocks
At the core of modern finance is the proposition that beta (market) risk is the dominant factor that drives performance. But numerous empirical tests of the capital asset pricing model (CAPM) over the decades suggest otherwise. There have be various attempts to adjust CAPM to find a closer mapping of risk and return, but the results have been mixed. Perhaps two new research papers move us closer to the elusive goal of revising a CAPM-based view of asset pricing so that its theoretical ideal for risk and return moves closer to empirical results in money management practice.