Explanations for the Volatility Effect: An Overview Based on the CAPM Assumptions

摘要

The capital asset pricing model (CAPM) predicts that the relation between beta and return is linearly positive, but the initial empirical tests of the capital asset pricing model (CAPM) done by Black, Jensen, and Scholes [1972], Fama and MacBeth [1973] and Haugen and Heins [1975] observed that the risk-return relation is flatter than the model predicts. Twenty years later, the seminal Fama and French [1992] paper found that, after adjusting for size effects, the relation between CAPM beta and return is flat over the period from 1963 to 1990. Various subsequent studies have confirmed this flat empirical relation between beta and return, or even found that the relation is negative; see, e.g., Black [1993], Haugen and Baker [1991, 1996, 2010], Falkenstein [1994], Clarke, de Silva, and Thorley [2010], and Baker, Bradley and Wurgler [2011].