BFS 2002

Poster Presentation

CAPM Empirical Problems and the Distribution of Returns

Francois Desmoulins-Lebeault

The CAPM is generally contested on an empirical basis. The tests conducted with data from financial markets do not generally imply the acceptance of the model as describing correctly the range of expected returns. Explaining the size of the residuals by factors missing from the hypothesis of the CAPM may lead to a better understanding of the origins of the empirical weaknesses of this model. We believe that the distributional properties of assets' returns are not correctly described by the assumption of joint normality. We will therefore study the distribution of assets returns and their impact on the CAPM empirical performances. Specifically we will explore the relationship that may exist between the ineffectiveness of the CAPM and the non normality of the returns distribution. More to the point, can we find a descriptive statistic of the returns distribution that will predict the ineffectiveness of the beta for a given asset?