Using the Capital Asset Pricing Model and the Market Model to Predict Security Returns

R. Richardson Pettit and Randolph Westerfield

Journal of Financial and Quantitative Analysis, 1974, vol. 9, issue 4, 579-605

Abstract: This paper examines the validity of two widely used methods for forming conditional predicted portfolio returns. The first method relies on a one-period, mean-variance theory of equilibrium expected return, sometimes referred to as the “capital asset pricing model” (CAPM). The second method is based upon a proposal by Markowitz [14] and is called the [market model] (MM).

Date: 1974
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