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Hello John 🙂
I just come across a phrase saying that
CAPM is unable to forecast accurately returns for companies with low Price/Earnings ratio – can you explain why..?
Thanks in advance 🙂I don’t know where you found this phrase!
CAPM will never accurately forecast returns for any company.
If a company has a low PE ratio (by comparison with similar companies) then it suggests that there are more risks associated with this company which may make calculating and using an appropriate beta more inaccurate.
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