The CAPM is Wanted, Dead or Alive

Kothari, Shanken, and Sloan (1995) claim that betas from annual returns produce a stronger positive relation between beta and average return than betas from monthly returns. They also contend that the relation between average return and book-to-market equity (BE/ME) is seriously exaggerated by survivor bias. Fama and French argue that survivor bias does not explain the relation between BE/ME and average return. They also show that annual and monthly betas produce the same inferences about the beta premium. The main point on beta premiums is, however, more basic. It cannot save the capital asset pricing model (CAPM), given the evidence that beta alone cannot explain expected return.