The CAPM - Why it is no better than rule of thumb methods.

The CAPM is a common method to calculate the expected or required return on equity. This article examines the application of the CAPM in the context of the errors and uncertainties in performing an actual calculation and asks if it is worth the effort. Betas supplied by agencies most likely have large standard errors due to the influence of random noise and market risk premiums are little more than a hand waving number. The result is a calculated return on equity that is non-normally distributed. It is concluded that the application of the CAPM is no better than rule of thumb methods and actually may be worse due to conferring an undeserving degree of certainty among its users