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CAPM has two implications on cross-sectional returns: 1) Implication 1: In the CAPM, should stocks with higher betas have higher or lower average returns? 2)

CAPM has two implications on cross-sectional returns: 1) Implication 1: In the CAPM, should stocks with higher betas have higher or lower average returns? 2) Implication 2: After controlling for the market beta, what characteristics should explain average returns in the cross section in the CAPM? 3) Do these two predictions hold in the data?

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