CAPM states expected return is linear in beta against an optimal portfolio.

Evidence

If investors are guided only by risk and return, and if they all have the same estimates of assets’ expected returns, risks, and mutual correlations, 26 then, Sharpe’s analysis showed, the prices of assets had to adjust such that in equilibrium there was a straight-line relationship between the expected return on an asset and its beta, the extent of its sensitivity to the return on an optimal portfolio. This result was at the core of what was soon to become known as the Capital Asset Pricing Model (CAPM . — Donald MacKenzie, An Engine, Not a Camera, 240

Categorization

• DEFINE: States the CAPM’s core result: a straight-line relation between expected return and beta.
• XREF: connects to: The efficient frontier is the set of portfolios offering minimum variance for given return. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 214; In equilibrium, securities with higher betas yield higher expected returns. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 237; Early CAPM tests found low-beta stocks overperformed and high-beta stocks underperformed predictions — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 392 (+3 more)

Broader Connections

• An asset’s expected return rises in a straight line with its market beta #corroborates (0.98) — Donald MacKenzie, An Engine, Not a Camera, 254
• Early CAPM tests found low-beta stocks overperformed and high-beta stocks underperformed predictions #complicates (0.92) — Donald MacKenzie, An Engine, Not a Camera, 392
• Restricting riskless borrowing explains the empirically observed low-beta anomaly #qualifies (0.80) — Donald MacKenzie, An Engine, Not a Camera, 394