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An Engine, Not a CameraHow Financial Models Shape Markets$
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Donald Mackenzie

Print publication date: 2006

Print ISBN-13: 9780262134606

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262134606.001.0001

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Tests, Anomalies, and Monsters

Tests, Anomalies, and Monsters

Chapter:
(p.89) 4 Tests, Anomalies, and Monsters
Source:
An Engine, Not a Camera
Author(s):

Donald MacKenzie

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262134606.003.0004

This chapter describes some of the tests, exceptions, and controversies associated with the Capital Asset Pricing Model (CAPM). Evidence regarding the ineffectiveness of the CAPM in establishing pricing mechanisms for capital assets emerged in the 1970s in the United States. A few eminent economists proposed to modify the CAPM to address these issues while retaining its original structure. Some other financial researchers suggested that this model needed to be discarded and replaced with an effective and accurate model of determining the value of capital assets in the United States. Some students of financial economics also criticized the CAPM on the grounds that the model could not be tested under real-world conditions.

Keywords:   pricing mechanism, capital assets, United States

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