Question

Name three possible explanations for empirical observations which seem to deviate from or contradict the CAPM:

Name three possible explanations for empirical observations which seem to deviate from or contradict the CAPM:

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Three possible explanation for various empirical observation which seems to deviate or contradict the Capital Asset pricing model will be-

A)investors are never rational in nature and they will never be diversifying properly and there will always be a behavioral bias in their investment.

B) Capital Asset pricing model assumes that the beta of a stock is always stable in nature but in the real world the beta of a stock is never stable and it is always fluctuating in nature and it can never be fixed.

C)the risk-free rate is never risk free even the Government bonds are subject to default. various government has been downgraded significantly and they are not able to service their debt.

these are the three possible contradiction that could limit the application of Capital Asset pricing model in the real world and they may be the reasons to deviate CAPM from original form.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Name three uses for the risk premiums derived from the CAPM:
Name three uses for the risk premiums derived from the CAPM:
There are two classes of explanations for the two major observations concerning Dark Matter. The first...
There are two classes of explanations for the two major observations concerning Dark Matter. The first class explains Dark Matter as some heretofore unknown massive stuff that we have not been able to detect prior to these observations. The second class of explanations suggests that the current theory of gravity is not true at the scale of galaxies, opening the way for an alternative theory of gravity (Modified Newtonian Dynamics or MOND). In your textbook there is a section about...
Give explanations for the three possible reasons for an outlier in the context of this example....
Give explanations for the three possible reasons for an outlier in the context of this example. Human error in recording: The data value is from a different population: The data value is from the population sampled:
The chi-square goodness-of-fit test is used to determine whether observed frequencies significantly deviate from expected frequencies....
The chi-square goodness-of-fit test is used to determine whether observed frequencies significantly deviate from expected frequencies. In most instances, the researcher hopes to find a significant result (indicating that the observations deviate from expectations), which would provide some evidence for a treatment effect. • Share an example of a situation in which the researcher might hope for a non-significant result. Be sure to state why they would hope for such a result. (Type Answer & Explain your example)
James Fearon identifies three “rationalist explanations for war.” List and explain all three of these. Which...
James Fearon identifies three “rationalist explanations for war.” List and explain all three of these. Which one is the most compelling explanation for war? Sub: Political Science
If the simple CAPM is valid, which of the situation in Tables below are possible? Explain....
If the simple CAPM is valid, which of the situation in Tables below are possible? Explain. Consider each situation independently A.) Portfolio Expected Return Standard Deviation Risk Free Rate 5% 0% Market 21% 22% A 20% 10% B.) Portfolio Expected Return Beta Risk Free 10% 0 Market 18% 1.0 A 22% 2
in which of the following molecules would you expect real bond angles to deviate from ideal?...
in which of the following molecules would you expect real bond angles to deviate from ideal? Please explain how to determine this. a) CO3^2- b) CF4 c) SO3 d) ICl2+ e) PCl5
The Fama-French three-factor model adds to the CAPM factors that reflect these empirical regularities: A. Steady...
The Fama-French three-factor model adds to the CAPM factors that reflect these empirical regularities: A. Steady earnings and predictable investment patterns each earn higher returns. B. Stocks earn higher returns that have high debt/asset ratios and low P/E ratios. C. Large-cap returns lag small-cap stock returns and low book-to-mkt returns lag high book-to-mkt returns. D. High-beta stocks earn negative alpha, on average, and low-beta stocks earn positive alpha. A well-documented anomaly consistent with trader loss aversion is … A. buying...
Name three possible fates for an endocytosed cargo that has reached the endosome in a polarized...
Name three possible fates for an endocytosed cargo that has reached the endosome in a polarized epithelial cell and explain the mechanism for how that cargo vesicle finds and fuses with the endosomal membrane.
Which of the following statements is false? (a) The properties of N2(g) will deviate more from...
Which of the following statements is false? (a) The properties of N2(g) will deviate more from ideality at -100oC than at 100oC. (b) Van der Waal's equation corrects for the non-ideality of real gases. (c) Molecules of CH4(g) at high pressures and low temperatures have no attractive forces between each other. (d) Molecules of an ideal gas are assumed to have no significant volume. (e) Real gases do not always obey the ideal gas laws.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT