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Why the CAPM Falls Flat

Fischer Black exposed a bias in a measure of risk-adjusted return.

This article originally appeared in the fall 2019 issue of Morningstar Magazine. To learn more about Morningstar Magazine, please visit our corporate website.

The Capital Asset Pricing Model is one of the most influential models in finance. It makes strong assumptions about investor behavior from which it derives strong conclusions about portfolio construction and expected returns. Its assumptions are: