The CAPM Debate

Abstract

For a discussion of how corporate managers use models like the CAPM, see the box displayed later in the article. 2 According to the description given by the source for these data, Ibbotson Associates 1992, the common stock returns are based on Standard & Poor's composite index.This index includes 500 stocks now, but it included only 90 stocks before March 1957.For the period 1926-81, the small-firm stock index consisted of stocks in the smallest quintile of firms in terms of their market value of equity (their share price times shares outstanding) listed in the New York Stock Exchange; the portfolio composition is rebalanced once every five years.Starting in 1982, the small-firm stock index corresponds to the Dimensional Fund Advisors' Small Company Fund.For the period 1926-76, the total returns on long-term U.S. government bonds are from the Center for Research in Security Prices (CRSP) at the University of Chicago Graduate School of Business.Each year one bond portfolio is constructed with a maturity of about 20 years.For the period 1977-91, data from the Wall Street Journal are used to compute the total returns on bond funds.For U.S. Treasury bill returns, data from the CRSP U.S. government bond file are used through 1976.Data reported in the Wall Street Journal are used for the period thereafter.

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