Given the results of the early studies by Lintner (1965) and Miller and Scholes (1972), one would conclude that
A) high beta stocks tend to outperform the predictions of the CAPM.
B) low beta stocks tend to outperform the predictions of the CAPM.
C) there is no relationship between beta and the predictions of the CAPM.
D) high beta stocks and low beta stocks tend to outperform the predictions of the CAPM.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

The early studies by Lintner (1965) and Miller and Scholes (1972) suggested that low beta stocks tend to outperform the predictions of the Capital Asset Pricing Model (CAPM), which contradicts the model's implication that higher risk (beta) should be compensated with higher returns.

Given the Results of the Early Studies by Lintner (1965)