CAPM Never Confirmed?

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I was looking at a 2004 JEP paper from Fama and French on the history of the CAPM.  Interestingly, they mention all the papers that showed the slope on CAPM betas was ‘too low’, and it included just about everyone.  It got me thinking: was there ever a paper that didn’t estimate the security market line was ‘too low?’

Recall that, in cross-section 11 regressions, the Sharpe – Lintner model predicts that the intercept is the riskfree rate and the coefficient on beta is the expected market return in excess of the risk-free rate, E(RM) – Rf. The regressions consistently find that the intercept is greater than the average risk-free rate (typically proxied as the return on a one-month Treasury bill), and the coefficient on beta is less than the average excess market return (proxied as the average return on a portfolio of U.S. common stocks minus the Treasury bill rate). This is true in the early tests, such as Douglas (1968), Black, Jensen and Scholes (1972), Miller and Scholes (1972), Blume and Friend (1973), and Fama and MacBeth (1973), as well as in more recent cross-section regression tests, like Fama and French (1992).

The evidence that the relation between beta and average return is too flat is confirmed in time series tests, such as Friend and Blume (1970), Black, Jensen, and Scholes (1972), and Stambaugh (1982). The intercepts in time series regressions of excess asset returns on the excess market return are positive for assets with low betas and negative for assets with high betas.

When I was in grad school, this was not conventional wisdom, though with hindsight it supposedly was.  Rather, we emphasized that you could not reject the CAPM if you through the kitchen sink of uncertainties and refinements in there.