CAPM and market efficiency tests cannot be cleanly separated empirically.

Evidence

For example, many efforts were made empirically to test two developments in finance theory: the Capital Asset Pricing Model and the efficient-market hypothesis. Normally it was not possible to disentangle these entirely so that only one was being tested at a time; typically the tests were of both the model and the hypothesis simultaneously. Tests of market efficiency usually involved examining whether investment strategies were available that systematically generated “excess” risk-adjusted returns. A criterion for what constitutes an “excess” return was thus needed, and in the early years of such testing the Capital Asset Pricing Model was usually invoked as the criterion. When “anomalies” were found in the results of the tests, how to interpret them was therefore debatable: were they cases of market inefficiency, or evidence against the Capital Asset Pricing Model? — Donald MacKenzie, An Engine, Not a Camera, 110

Categorization

• DEFINE: Clarifies how “excess returns” and “anomalies” are structurally defined in empirical finance testing.
• XREF: connects to: Contradictory econometric results cannot be adjudicated a priori — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 108; The CAPM may be true but can never be empirically tested — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 404; Empirical testing can only fail to disconfirm, never confirm, models like the CAPM — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 408 (+5 more)

Broader Connections

• The CAPM may be true but can never be empirically tested #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 404
• Empirical testing can only fail to disconfirm, never confirm, models like the CAPM #corroborates (0.85) — Donald MacKenzie, An Engine, Not a Camera, 408
• Market discourse cannot be analyzed apart from real market realities. #corroborates (0.80) — Fredric Jameson, Postmodernism, or, The Cultural Logic…, 579
• Regulatory use of CAPM could generate model-compliant returns but remains untested empirically #qualifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1150
• Economic theory and actual market practice cannot be radically separated in derivatives #corroborates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1182