10. The following is an excerpt from the article “Risk and Reward,”

published in the Economist of October 20, 1990:

Is the CAPM supported by the facts? That is controversial, to put it mildly. It is a tribute to Mr Sharpe

(co-winner of the 1990 Nobel Prize in Economics) that his work, which dates from the early 1960s, is still argued over so heatedly. Attention has lately turned away from beta to more complicated ways of carving up risk. But the significance of CAPM for financial economics would be hard to exaggerate.

a. What are the general conclusions of studies that empirically investigated the CAPM?

b. Summarize Roll’s argument on the problems inherent in empirically verifying the CAPM.