The CAPM aligned with practitioners’ intuitions yet could discipline investment managers

Evidence

Take the Capital Asset Pricing Model, for example. It had aspects that were broadly compatible with how practitioners thought about stocks. When the computers and data sets of the 1960s and the 1970s were used to calculate betas, it usually turned out that low-beta stocks were those that practitioners regarded as stable, “defensive” investments, whereas a high beta generally indicated a riskier “growth” stock. So far so good, from a traditional practitioner’s viewpoint. The CAPM could, however, also be turned into a disciplinary device, subjecting investment managers’ results to mathematical scrutiny. — Donald MacKenzie, An Engine, Not a Camera, 356

Categorization

• DEFINE: Clarifies what beta meant in practice — low beta = defensive stocks, high beta = growth stocks — anchoring the technical term in practitioners’ categories.
• XREF: The dual nature of CAPM (compatible yet disciplinary) parallels how the law-merchant institutions both enabled trade and disciplined cheaters. — 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; Finance theory often shapes managers’ vocabulary without changing their actual practice — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1136

Broader Connections

• Regulatory use of CAPM could generate model-compliant returns but remains untested empirically #qualifies (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1150
• Finance theory often shapes managers’ vocabulary without changing their actual practice #complicates (0.75) — Donald MacKenzie, An Engine, Not a Camera, 1136