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The Investment CAPM

Lu Zhang

NBER Working Paper No. 23226
Issued in March 2017
NBER Program(s):Asset Pricing, Corporate Finance, Economic Fluctuations and Growth

A new class of Capital Asset Pricing Models (CAPM) arises from the first principle of real investment for individual firms. Conceptually as "causal"' as the consumption CAPM, yet empirically more tractable, the investment CAPM emerges as a leading asset pricing paradigm. Firms do a good job in aligning investment policies with costs of capital, and this alignment drives many empirical patterns that are anomalous in the consumption CAPM. Most important, integrating the anomalies literature in finance and accounting with neoclassical economics, the investment CAPM succeeds in mounting an efficient markets counterrevolution to behavioral finance in the past 15 years.

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Document Object Identifier (DOI): 10.3386/w23226

Published: Lu Zhang, 2017. "The Investment CAPM," European Financial Management, vol 23(4), pages 545-603.

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