In his famous critique of the CAPM, Roll argued that the CAPM ________.
A) is not testable because the true market portfolio can never be observed
B) is of limited use because systematic risk can never be entirely eliminated
C) should be replaced by the APT
D) should be replaced by the Fama-French three-factor model

Question

Quizplus · Accepted Answer

Roll's critique of the Capital Asset Pricing Model (CAPM) is that it is not testable in a true sense because the actual market portfolio, which should include all assets in the world (not just traded financial assets but also things like human capital and real estate), can never be fully observed or replicated.

In His Famous Critique of the CAPM, Roll Argued That