Question: Does CAPM offer a formal mechanism that explains how the market sets prices of traded equities? If CAPM does not offer such a mechanism, then

  1. Does CAPM offer a formal mechanism that explains how the market sets prices of traded equities?

  2. If CAPM does not offer such a mechanism, then it follows that asset pricing and market prices of traded equities are distinct concepts. Is this implication (conclusion) correct?

  3. If the aforementioned implication is correct, what is the meaning of asset pricing in CAPM? Does the main equation of the model provide an answer to this question? Please provide detailed answers to all question thank you so much for your help!! :)

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