Market Efficiency: A Theoretical Distinction and so What?

With the aid of some simplifying assumptions, the capital asset pricing model comes to dramatic conclusions about practical matters, such as how to choose an investment portfolio and how to value financial assets. As illustrated in this article, when one particular, clearly unrealistic CAPM assumpti...

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Bibliographic Details
Published inFinancial analysts journal Vol. 61; no. 5; pp. 17 - 30
Main Author Markowitz, Harry M.
Format Journal Article
LanguageEnglish
Published Charlottesville CFA Institute 01.09.2005
Taylor & Francis Ltd
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Summary:With the aid of some simplifying assumptions, the capital asset pricing model comes to dramatic conclusions about practical matters, such as how to choose an investment portfolio and how to value financial assets. As illustrated in this article, when one particular, clearly unrealistic CAPM assumption is replaced by a more real-world version, some of the dramatic, practical conclusions of CAPM no longer follow. This result has implications for financial practice, research, and pedagogy.
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ISSN:0015-198X
1938-3312
DOI:10.2469/faj.v61.n5.2752