The usefulness of CAPM theory is limited in practice due to benchmark error.

Question

Quizplus · Accepted Answer

While CAPM theory is widely used in finance and investment management, it has limitations in practice due to benchmark error. The theory assumes that the market benchmark is efficient and accurately represents the overall market risk, which may not be true in reality. This can lead to inaccurate calculations of expected returns and risky assets, reducing the usefulness of the theory in practical applications.

The Usefulness of CAPM Theory Is Limited in Practice Due