The best-beta CAPM
The issue of 'best-beta’ arises as soon as potential errors in the Sharpe-Lintner-Black capital asset pricing model (CAPM) are acknowledged. By incorporating a target variable into the investor preferences, this study derives a best-beta CAPM (BCAPM) that maintains the CAPM's theoretical appeal and analytical simplicity yet unambiguously improves its pricing accuracy. Empirical observations suggest that the BCAPM predicts expected returns better than the CAPM by 20% to 30% annually. Where we cannot invent, we may at least improve; we may give somewhat of novelty to that which was old, condensation to that which was diffuse, perspicuity to that which was obscure, and currency to that which was recondite .Charles Caleb Colton
Volume (Year): 2 (2006)
Issue (Month): 2 (March)
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References listed on IDEAS
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- John Y. Campbell, 2000.
"Asset Pricing at the Millennium,"
Journal of Finance,
American Finance Association, vol. 55(4), pages 1515-1567, 08.
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- Dimson, Elroy & Mussavian, Massoud, 1999. "Three centuries of asset pricing," Journal of Banking & Finance, Elsevier, vol. 23(12), pages 1745-1769, December. Full references (including those not matched with items on IDEAS)
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