- Berk, Jonathan B., 1962- author.
- Stanford, California : Stanford Graduate School of Business, 2013.
- Book — 19 pages ; 28 cm.
"We propose a new method of testing asset pricing models that does not rely on prices and returns but on quantities (flows) instead. Under the assumption that capital markets are competitive and investors rational, an asset pricing model can only be correct if investors are using it in their capital allocation decisions. Therefore, any investment opportunity that the model identifies as having a non-zero alpha must be accompanied by capital flows of the same sign as the alpha. We use the data on active mutual funds to identify such flows, and find that the recent alternatives to the Capital Asset Pricing Model do not improve upon the original model." Abstract provided by authors.
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