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Assumptions of the capm

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To learn about the expectations different banks and fund managers have about the future expected returns, volatilities, and correlations of asset classes, you read the capital market assumptions of JP Morgan and of Goldman Sachs. You notice that their forecasts of future volatilities and correlations are the same but that their expected return forecasts differ.

(a) If both firms believe that the CAPM is correct and that their capital market assumptions have accounted for all assets in the universe, how can you explain that the two firms forecast different expected returns?

(b) Still, what can you say about the assumptions of the CAPM given how the two banks differ in their capital market assumptions?

Reference no: EM133004900

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