The CAPM was first published by Sharpe in the Journal of Finance in 1964
Many tests of the theory have since followed including Roll’s critique in 1977 and the Fama and French study in 1992
MULTIFACTOR MODELS AND THE CAPM
Multifactor Models
Limitations for CAPM
Market Portfolio is not directly observable
Research shows that other factors affect returns
Fama French Three-Factor Model
Returns are related to factors other than market returns
Size
Book value relative to market value
Three factor model better describes returns
Table 7.3 Summary Statistics for Rates of Return Series
Table 7.4 Regression Statistics for the Single-index and FF Three-factor Model
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