Testing CAPM substituted realized returns for expected returns via rational-expectations assumptions.

Evidence

Conversely, central to the Capital Asset Pricing Model was what the model posited about the returns expected by investors on assets with different sensitivities to market fluctuations, but typically no attempt was made to measure these expected returns directly for example, by surveying investors. (The results of any such survey would have been regarded as unreliable by most financial economists.) Instead, in empirical tests of the Capital Asset Pricing Model, more easily measurable after-the-fact realized returns were used as a proxy for expected returnsa substitution that rested on an efficient-market, rational-expectations view of the latter. — Donald MacKenzie, An Engine, Not a Camera, 111

Categorization

• XREF: Connects to the broader performativity literature’s point that tests smuggled in the very assumptions under examination, echoing the Mirowski critique of economics’ reflexive testing. — connects to: Regulatory use of CAPM could generate model-compliant returns but remains untested empirically — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1150; CAPM test outcomes depend on which assets are included in the aggregate wealth measure — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 406; Arbitrage pricing theory generalizes CAPM to multiple unspecified risk factors — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1542 (+2 more)

Broader Connections

• Arbitrage pricing theory generalizes CAPM to multiple unspecified risk factors #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 1542
• CAPM test outcomes depend on which assets are included in the aggregate wealth measure #complicates (0.80) — Donald MacKenzie, An Engine, Not a Camera, 406
• Regulatory use of CAPM could generate model-compliant returns but remains untested empirically #complicates (0.72) — Donald MacKenzie, An Engine, Not a Camera, 1150