“It is crystal clear that CAPM and its betas do not explain anything about expected or required returns. There are mountains of evidence to support my stance.” So writes Pablo Fernandez (University of Navarra, IESE Business School) in his latest paper, “Is It Ethical to Teach That Beta and CAPM Explain Something?” The paper has already received over 100 comments from professors and financial professionals, and it has propelled him over the 1 million mark in terms of downloads of his 251 papers on SSRN (he’s ranked No. 1).
It’s absurd: Fernandez wrote the 2014 paper “CAPM: An Absurd Model,” which generated so many comments that he issued a revised version and also published the comments as a separate paper. Over three-quarters (78%) of the commenters on that paper agree with the term “absurd” to describe CAPM.
In the new paper, he has a question for professors who say that CAPM explains something: “If CAPM has some usefulness, why are you not a millionaire?”
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