Capital Asset Theory and Performance Analysis

© 2007 John Nagorniak

Performance measurement is dependent on the risk/return model used or assumed in the analysis. Every model of capital market behavior is incomplete. Fama and French, with their three-factor model of market structure, moved toward performance measurement that spanned more of the variance extant in the equity markets. The single index model can be gamed, as is suggested in both Nagorniak – 1982 and the present analysis. The present analysis also explores gaming Fama-French(FF), and finds that FF appears robust to the methods attempted herein.