Is the CAPM Dead or Alive? A Meta-Analytical Approach

Abstract

Rather than simply providing a narrative literature survey on the CAPM, a comprehensive meta-analysis of the effect of the beta on stock returns was performed. Our meta-analysis covers 47 papers that met inclusion criteria for a 38 year period that spans from 1972 to 2009. The papers examining the three main versions of the model; the conditional CAPM, the Downside CAPM, and the Higher-moments CAPM are also considered. This was done for two main reasons. Firstly, to claim whether the model is still valid or some improvements in the model must be considered. Secondly, this allows for comparison. Using the random effects model and basing only on published papers, the results indicate that the CAPM is alive. Additionally the results indicate that the traditional CAPM is the most predominant one with reference to the other versions. Combining both published and unpublished papers, the beta effect remains mostly significant. However, the unpublished papers have enhanced both the conditional beta effect and the downside one. The dependent variables of the versions of the CAPM (traditional Beta, Downside Beta, conditional Beta and higher order moments Beta), and the moderating variables of research setting (i.e., study context (developed market, emerging market), regression method (time series regression, cross section regression), test assets (individual securities, portfolios) and market portfolio (equally-weighted index, value-weighted index), were coded. Via meta-regression, it is shown that to bring the CAPM to a valid conclusion, a time series regression, value weighted index, portfolios as test assets, and an emerging market context are necessary.

Keywords: CAPM, meta-analysis, random-effects model, moderating variables, meta-regression