Biased Estimates Corrected: Unveiling the True Expected Return in Finance.
Estimating expected returns for financial decisions is crucial. The Capital Asset Pricing Model (CAPM) is commonly used for this, but using indexes as proxies for the world market portfolio can lead to biased estimates. A study found that a method suggested by Fama and MacBeth results in unbiased estimates for expected return. It doesn't matter which proxy is used, as long as it is used correctly, an unbiased estimate is achieved.