RISK AND RETURN - AN EXPERIMENTAL-ANALYSIS

An investment experiment in which a real monetary profit or loss can o ccur is designed to test the Capital Asset Pricing Model (CAPM) and th e Generalized CAPM (segmented market model) with ex-ante parameters. R isk and return are found to be strongly associated. While in most case s the Generalized CAPM beta provides the best results, the CAPM beta ( and even the individual asset's variance, being a good proxy to the Ge neralized CAPM beta) reveals a strong positive association with mean r eturns. I conclude that the risk-return equilibrium model is not dead; it is alive and doing better than previous empirical studies have rev ealed.