The Investment CAPM
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.
I thank Hang Bai, Zhengyu Cao, Alex Edmans, Andrei Goncalves, Kewei Hou, Stephen Penman, Andreas Stathopoulos, and especially Chen Xue for helpful comments. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.
Lu Zhang, 2017. "The Investment CAPM," European Financial Management, vol 23(4), pages 545-603. citation courtesy of