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?

  4. Does the main equation of CAPM explicate a solution strategy

  5. What is the fundamental difference between a solution strategy to determine efficient portfolios, formulated by Markowitz, and the CAPM solution strategy

  6. How do Fama and French assess the effectiveness of CAPM solution strategy in the long run? Which characteristics of this strategy are Fama and French considered deficient?

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