Testing the CAPM is difficult,as empirical tests have to rely on __________ data,whereas the CAPM is an __________ model.

A) ex-ante; ex-ante
B) ex-ante; ex-post
C) ex-post; ex-ante
D) ex-post; ex-post

Question

Testing the CAPM is difficult,as empirical tests have to rely on __________ data,whereas the CAPM is an __________ model.

A) ex-ante; ex-ante
B) ex-ante; ex-post
C) ex-post; ex-ante
D) ex-post; ex-post

Quizplus · Accepted Answer

One problem with testing the CAPM is the requirement that an ex-ante model be tested using ex-post information.The CAPM is ex-ante in the sense that it assumes investors price assets according to their beliefs about future returns.The tests are ex-post in the sense that they rely on historical data.The assumption generally made in testing is that past information will reflect expectations given a sufficiently long time period.

Testing the CAPM Is Difficult,as Empirical Tests Have to Rely