The CAPM Is Wanted, Dead or Alive

Eugene Fama () and Kenneth French

Journal of Finance, 1996, vol. 51, issue 5, 1947-58

Abstract: Kothari, Shanken, and Sloan (1995) claim that betas from annual returns produce a stronger positive relation between beta and average return than betas from monthly returns. They also contend that the relation between average return and book-to-market equity (BE/ME) is seriously exaggerated by survivor bias. We argue that survivor bias does not explain the relation between BE/ME and average return. We also show that annual and monthly betas produce the same inferences about the beta premium. Our main point on the beta premium is, however, more basic. It cannot save the Capital asset pricing model (CAPM), given the evidence that beta alone cannot explain expected return. Copyright 1996 by American Finance Association.

Date: 1996
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