Investment research is crucial for gaining insights into financial markets. Reviewing academic papers on investments can help summarize key findings and takeaways. This article will focus on two example research papers related to investments and portfolio management, summarizing their objectives, data sources, methodologies, and main conclusions.
CAPM’s mixed empirical performance
The first paper empirically tests the capital asset pricing model (CAPM). It finds that the security market line (SML) slope is flatter and intercept higher than CAPM predicts. The excess returns of high-beta assets are lower, and low-beta assets higher, than predicted. The paper concludes that the CAPM, while elegant in theory, has mixed support in historical data.
Many anomalies may be false positives
The second paper warns that many claimed anomalies or factors may be false positives from data snooping biases. It constructs out-of-sample pre-1963 data for 36 accounting-based factors. Most dramatically underperform out of sample, suggesting data mining rather than risk or mispricing explain their in-sample success.
In review, while empirical tests often find gaps between theoretical models and market data, investment research continues providing valuable insights.