IDEAS home Printed from
   My bibliography  Save this article

The Failure of Neoclassical Financial Economics: The Capital Asset Pricing Model and its Pillars as an Illustration




It is argued that the CAPM and its variants and extensions are theoretically invalid, empirically unsupported and practically useless. The efficient market hypothesis and the rational expectations hypothesis, which are two pillars of asset pricing models and neoclassical finance in general, have been invalidated by the advent of the global financial crisis and the development of alternative paradigms such as behavioural finance. It is also argued that the mushrooming of asset pricing models that bear no relevance to reality has been sustained by the excessive mathematisation of finance and the use of improper econometric procedures, including data mining.

Suggested Citation

  • Moosa, Imad, 2011. "The Failure of Neoclassical Financial Economics: The Capital Asset Pricing Model and its Pillars as an Illustration," Journal of Financial Transformation, Capco Institute, vol. 33, pages 69-76.
  • Handle: RePEc:ris:jofitr:1518

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    CAPM; Fama-French Model; Asset pricing;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:1518. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Shahin Shojai) or (Rebekah McClure). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.