What does it mean when the CAPM is called "robust?"
A)The CAPM requires no assumptions.
B)Even if most of the assumptions of the CAPM are relaxed,most of the conclusions will still hold.
C)The CAPM is based on realistic assumptions.
D)No other model can represent stock returns better than the CAPM.

Question

Quizplus · Accepted Answer

When a model is called "robust," it means that it can withstand changes in assumptions or inputs without significantly affecting the validity of its conclusions. In the case of the CAPM, this means that even if some of the assumptions (such as perfect competition or efficient markets) do not hold in reality, the model can still provide useful insights and predictions about the relationship between risk and return. However, it does not mean that the CAPM requires no assumptions or that no other model can represent stock returns better.

What Does It Mean When the CAPM Is Called "Robust