The research by Fama and French suggesting that CAPM is invalid has generated which of the following responses?
A) Better econometrics should be used in the test procedure.
B) Estimates of asset betas need to be improved.
C) Theoretical sources and implications of research that contradicts CAPM needs to be reconsidered.
D) The single-index model needs to account for nontraded assets and the cyclical behavior of asset betas.
E) All of the options are correct.

Question

Quizplus · Accepted Answer

The research by Fama and French challenging the Capital Asset Pricing Model (CAPM) has led to a broad range of responses aimed at addressing the model's limitations and improving its accuracy. These responses include calls for better econometrics, improved estimates of asset betas, reconsideration of the theoretical underpinnings of research that contradicts CAPM, and modifications to the single-index model to account for nontraded assets and the cyclical behavior of asset betas.

The Research by Fama and French Suggesting That CAPM Is