01114nas a2200145   4500008004100000245006100041210006100102260000900163300001200172490000700184520064900191653001200840100001700852856009900869       2011                        eng d00aTesting the CAPM across observed and fundamental returns0 aTesting the CAPM across observed and fundamental returns  c2011  a625-6360 v213 aThe CAPM describes a relationship between risk and expected forward-looking returns. Existing research tests the model using realized returns as the proxy for ex-ante expectations. However, recent studies cast doubt on the ability of ex-post observed returns to proxy for ex-ante expectations. Using an alternative specification to proxy for investor expectations, I test the CAPM in the context of pricing size and book/market equities. The results indicate that the CAPM retains additional merit with an improved measure of expectations. However, the value premium appears large and significant across both specifications of expected returns.10aFinance1 aBerger, Dave  u/biblio/testing-capm-across-observed-and-fundamental-returns-0