New Study Challenges Traditional Asset Pricing Models, Reveals Market Anomalies
The article discusses how asset pricing models aim to explain factors affecting asset prices. The researchers used the capital asset pricing model (CAPM) to show that a security's price is based on its relationship with the market portfolio. However, studies have found anomalies that challenge the CAPM, such as securities with low price-earnings ratios performing better than expected. Additionally, smaller firms have higher returns than predicted by the CAPM.