New study shows CAPM can explain over half of market returns!
The CAPM is a financial model that helps predict returns on investments. Some assumptions made in previous studies were found to be unrealistic. When these assumptions were relaxed, the CAPM showed strong empirical support. Including human capital in wealth measurements improved the model's explanatory power. Allowing betas to vary over the business cycle further increased the model's accuracy. Size of investments did not account for the remaining unexplained variation in returns.