Last month, a Spanish academic ruffled some feathers with the provocatively titled paper CAPM: an absurd model, which reads a lot more like a diatribe on a pet topic than an academic paper (complete with non-standard typography). University of Navarra professor of finance Pablo Fernandez pointed out that CAPM (capital asset pricing model) is based on a number of assumptions that don’t quite match reality (not exactly breaking new ground), and that investors should instead rely on ‘common sense’ to guide their investment process.

The funny part is that Fernandez decided to share “233 interesting comments and criticism from several professors, finance professionals, and PhD students about the CAPM” in a second paper that reads a lot like an internet thread submitted for publication.


The comments run the full gambit from the hyperbolic: “I was shocked at how horrible your paper is. It is without a doubt the worst excuse for an academic study I have ever seen (emphasis in the original),” to the sincere readers who try to point out that CAPM is meant to be an approximation, not a low of the financial world. The grammarians come in to argue over the meaning of the word ‘theory’. Multiple commentators inevitably throw the ‘absurd’ label back at Fernandez, and plenty of people use their comments to expound on their own unaccepted theories. There’s some handwringing about what damage CAPM is doing to the minds of young finance students, a weird analogy about ‘priests doing bad things’ and a couple of appeals to authority.


CAPM: The simplest critique of Fernandez’s paper

It’s hard to imagine what Fernandez’s motivation for this is (surely no tenure committee will be impressed), but if you’re the kind of reader who likes to scroll down for the comments, both to see what the author might gotten wrong and to read the odd comments that follow any remotely controversial article, CAPM: the model and 233 comments about it, is an obscure treat.

And if not we’ll leave you with the best criticism, which is also the most straightforward:

“If you run tests similar to those in Fama and French (1992), you can be able [sic] to demonstrate that ‘common sense betas’ perform better than CAPM bets in explaining average returns. I will be happy to read your paper, again, after you run such tests.”


See full paper here.