CAPM

Relevance of Capital Market Theory: David Nawrocki 1.<Tab/>The old theory of CAPM makes the assumption that the CAPM line represents a long term model of assets fluctuations and risks versus returns. However, it is shown that the historical data does not take into consideration influential changes in the economy such as new technology. Therefore, from year to year, data can considerably change. The new CAPM theory has evolved to make …

…price and dividend to price in all of the three dimensions stated above: small vs. big stocks, value vs. growth stocks and market returns sensitivity. Those risks analysis are necessary for investors to make informed decisions that are hidden by the CAPM. (The problem, I believe, is that if this information becomes available to investors, profit resulting from value stocks' hidden gems will disappear to tie their prices to market's expectations therefore becoming growth stocks).