Critique of Tests of the CAPM

One of the most controversial papers written on the CAPM is Richard Roll's A Critique of the Asset Pricing Theory's Tests.9 We will discuss the major points of Roll's argument here. Following Roll's argument, the CAPM is a general equilibrium model based upon the existence of a market portfolio that is defined as the value-weighted portfolio of all investment assets. Furthermore, the market portfolio is defined to be ex ante mean-variance efficient. This means that the market portfolio lies on...

Stock Market Indicators

Stock market indicators have come to perform a variety of functions, from serving as benchmarks for evaluating the performance of professional money managers to answering the question, How did the market do today Thus, stock market indicators indexes or averages have become a part of everyday life. Even though many of the stock market indicators are used interchangeably, it is important to realize that each indicator applies to, and measures, a different facet of the stock market. The most...

Pension Funds

A pension plan is a fund that is established for the payment of retirement benefits. The entities that establish pension plans called plan sponsors are private business entities acting for their employees, state and local entities on behalf of their employees, unions on behalf of their members, and individuals for themselves. In the United States, corporate pension plans are governed by the Employee Retirement Income Security Act of 1974 ERISA . Pension funds are exempt from taxation. There are...