THE CAPITAL ASSET PRICING MODEL, INFLATION, AND THE INVESTMENT HORIZON: THE ISRAELI EXPERIENCE.

The article investigates the empirical validity of the capital assets pricing model (CAPM), as well as of a risk-adjusted measure of investment performance. Stock prices of shares trading on the Israeli securities market, a relatively thin one with about 100 securities listed, were examined for the period 1965 - 1976. The author's analysis reveals that for short-term horizons CAPM explains little, but when the investing horizon is extended to one year CAPM accounts for around 40% of the average rate of return's volatility.