CAPM promised a simple tradeoff hidden beneath Wall Street’s apparent complexity

Evidence

The theory of investment had been transformed. If the reasoning of Sharpe and of the other developers of the Capital Asset Pricing Model was correct, beneath the apparently bewildering complexity of Wall Street and other capital markets lay a simple tradeoff between systematic risk and return that could be captured by a straightforward, parsimonious, and elegant mathematical model. — Donald MacKenzie, An Engine, Not a Camera, 255

Categorization

• XREF: This is the classic economics claim that markets reduce to tractable parsimonious models — connects to the performativity thesis core and to wider critiques of homo economicus modeling. — connects to: Trading on a CAPM anomaly would have performed it away by bidding up prices — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 397; Regulatory use of CAPM could generate model-compliant returns but remains untested empirically — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1150; CAPM and market efficiency tests cannot be cleanly separated empirically. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 110 (+2 more)

Broader Connections

• Trading on a CAPM anomaly would have performed it away by bidding up prices #complicates (0.80) — Donald MacKenzie, An Engine, Not a Camera, 397
• CAPM and market efficiency tests cannot be cleanly separated empirically. #complicates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 110
• A bank sponsor turned a CAPM anomaly into a leveraged low-beta investment strategy #exemplifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 395
• Arbitrage pricing theory generalizes CAPM to multiple unspecified risk factors #expands (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1542
• Regulatory use of CAPM could generate model-compliant returns but remains untested empirically #qualifies (0.70) — Donald MacKenzie, An Engine, Not a Camera, 1150