The issue that realised returns only relate to actual returns in the long-term is relevant to use of the CAPM because:

A) beta is often measured with error
B) of issues raised in Roll's critique
C) no risk-free asset exists
D) the CAPM is an ex-ante model

Question

The issue that realised returns only relate to actual returns in the long-term is relevant to use of the CAPM because:

A) beta is often measured with error
B) of issues raised in Roll's critique
C) no risk-free asset exists
D) the CAPM is an ex-ante model

Quizplus · Accepted Answer

Ex-ante returns are expected returns,whereas ex-post returns are realised returns.The CAPM is an ex-ante model,and it provides estimates of expected returns adjusted for risk.Thus,any application of the CAPM will require an estimate of the ex-ante or expected risk premium.However,in practice,the ex-ante value is often estimated using ex-post returns,or realised returns.

The Issue That Realised Returns Only Relate to Actual Returns