CAPM-based company (mis)valuations

• Main Authors: DESSAINT, Olivier, OLIVIER, Jacques, OTTO, Clemens A., THESMAR, David
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Capital Budgeting; Valuation; Mergers and Acquisitions; Capital Asset Pricing Model; Corporate Finance; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6566; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7565/viewcontent/CAPM_based_Co_MisValuation_sv.pdf
• Institution: Singapore Management University

There is a discrepancy between CAPM-implied and realized returns. Using the CAPM in capital budgeting -- as recommended in textbooks -- should thus have real effects. For instance, low beta projects should be valued more by CAPM-users than by the market. We test this hypothesis using M&A data an...