CAPM test outcomes depend on which assets are included in the aggregate wealth measure

Evidence

Robert F Stambaugh, a Ph.D. student at the University of Chicago, countered Roll’s critique by testing the consequences of including assets such as “corporate bonds, government bonds … housefurnishing, automobiles, and real estate” in measures of the “returns on portfolios of aggregate wealth” (Stambaugh 1982, pp. 244 and 237). The performance of the Capital Asset Pricing Model was affected, Stambaugh concluded, by the specifics of how it was tested, and some of Stambaugh’s tests implied that it should be rejected. — Donald MacKenzie, An Engine, Not a Camera, 406

Categorization

• XREF: Illustrates the general principle that model test results depend on specification choices — connects to measurement-construction debates throughout the performativity literature. — connects to: Testing CAPM substituted realized returns for expected returns via rational-expectations assumptions. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 111; Regulatory use of CAPM could generate model-compliant returns but remains untested empirically — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1150; Arbitrage pricing theory generalizes CAPM to multiple unspecified risk factors — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1542 (+1 more)

Broader Connections

• Arbitrage pricing theory generalizes CAPM to multiple unspecified risk factors #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1542
• Regulatory use of CAPM could generate model-compliant returns but remains untested empirically #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 1150
• Indexing practice made CAPM’s single-portfolio implication seem less egregious to economists #corroborates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 385