Question: CAPM has two implications on cross-sectional returns: 1) In the CAPM, should stocks with higher betas have higher or lower average returns? 2) Apart from

CAPM has two implications on cross-sectional returns: 1) In the CAPM, should stocks with higher betas have higher or lower average returns? 2) Apart from the market beta, what characteristics should explain average returns in the cross section in the CAPM?

Do these two predictions hold in the data?

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