Findings by Basu that stocks with high P/E ratios tended to outperform stocks with low P/E ratios challenge the efficacy of the CAPM.

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) is primarily concerned with assessing the expected return of an investment based on its risk relative to the market, not directly with the valuation metrics like P/E ratios. Basu's findings on P/E ratios relate more to market anomalies and stock valuation techniques rather than challenging the core principles of CAPM, which are about the relationship between risk and expected return.

Findings by Basu That Stocks with High P/E Ratios Tended