Consequences of the Capital Asset Pricing Model (CAPM)-a Critical and Broad Perspective

• Published in: Abacus (Sydney) Vol. 49; no. S1; pp. 51 - 61
• Main Authors: Cai, Charlie X., Clacher, Iain, Keasey, Kevin
• Format: Journal Article
• Language: English
• Published: Blackwell Publishing Ltd 01.01.2013
• Subjects: Capital market; Conversation; Financial crisis; Government; Neoclassical economics; Population
• ISSN: 0001-3072; 1467-6281
• DOI: 10.1111/j.1467-6281.2012.00384.x

Mike Dempsey recognizes that rejection of the efcient market view of the world implies a research agenda that aims to understand the fallibility of markets and their potential for self-destruction. If the recent and ongoing global financial crisis has not convinced finance academics of the need for a more open and critical discussion of the operation of nancial markets, then we doubt that anything will be able to shift adherence from the current rational neoclassical core. But given that the whole academic finance industry (its journals, its routes to promotion, etc.) is conditioned on playing the mainstream game, perhaps we should not be too hopeful. Economics and finance should have a lot to offer in this situation, but we need robust conversations which move beyond the simple assumption of rational players operating in efficient markets.This paper is a result of good conversations, where we have looked at the markets, at academic nance, finance practitioners, governments and companies, hopefully as they are and not how we would like them to be. These conversations which started at Leeds with Mike 20 years ago continue to this day; the invitation to write about and articulate the need for good conversations in the current article is very much appreciated. We need to consider how markets operate on a minute-by-minute basis, how markets can be combined with government actions, how we develop financial products and processes to cope with an ageing population, and how we move back to notions of wider responsibility. Unless nance academics show some humility and application to the problems of real financial markets, we will not have the conversations (and the credible voice) we need and we will be destined to repeat the failures of the past 25 years. Reprinted by permission of Blackwell Publishers