The capital asset pricing model (CAPM) is an ex ante concept, whereas so-called
‘tests’ of the CAPM are conducted ex post.The CAPM is a partial equilibrium model
in which agents view the risk-free return (Rf) and the probability distribution of the
future return on risky assets (Rj) as exogenous. Dempsey (2013) argues that the
empirical evidence against the CAPM is so compelling that it has reached the point
where the CAPM should be abandoned, possibly being replaced by an assumption
that investors expect the same return on all assets, regardless of their relative risk.