Capital Asset Pricing Model

Capital Asset Pricing Model

Capital Asset Pricing Model

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Identify and briefly discuss three criticisms of beta, as used in the CAPM. Discuss these disparities in light of your investment objectives. Why are these criticisms important for an investor to understand?

Note: This is a CFA Exam Level 1 question.

Response Guidelines

  • Does it matter that the inputs (data) for beta are historical?
  • What other risk adjusted measure might one consider?
  • How can one be sure that an index is properly tethered to a given security?
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