Posted: December 21st, 2015

Critically evaluate the role of the CAPM in the modern asset pricing literature

Fama, E. and French, K., 1996, Multifactor explanations of asset pricing anomalies, Journal of Finance 51, 55-84
Your main article is Fama and French however you have to mention how did it start and which other articles/researches support Fama and French, also you have to mention any articles/researchers that do not support Fama and French
Some points to help you:
• What is the larger research question?
• What is the debate that forms the background for the article?
• What are the approaches/proponents/findings involved in this debate?
• What is the specific question the article addresses?
• What is the data set?
• Which method is used?
• What are the core findings? How these findings contribute towards the existing literature?
• What are the implications of the findings?
• Are the findings compatible with findings in other papers where a similar research question is addressed? If not, why?
• Is the database sufficient? Were appropriate controls in place?
• Which points were criticised in later studies (use google scholar to find articles citing the article that you review)?
• Could the results be interpreted in a different way?
As a general guide
1. Start with CAPM: give a brief description of CAPM
2. Then explain the challenges/difficulties/anomalies faced by CAPM (this could include reversal in long-term returns, momentum effect, size effect, boo-to market ratio effect, E/P, C/P, past sales growth…)
3. Explain how the anomalies are explained by the existing literature? (briefly)
4. Explain how the anomalies are explained by Fama and French? (in a bit more detail)
5. What are the evidences (both empirical and theoretical) that support the Fama and French? And any evidences (empirical and theoretical) that are against the proposed model in Fama and French? how the authors defend their model in their following papers?
It will be checked for plagiarism so it must be written by yourself
You have to include the reference in the text itself
You shouldn’t include you own opinion