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?

Answer rating: 100% (QA)

1 Stocks with higher betas should have higher average returns in th... View the full answer