Discuss a scenario in which the CAPM and APT models would lead to contradicting conclusions regarding the selection of stocks for your portfolio.

Week four dq – need tonight

The CAPM and APT models can lead to contradicting conclusions when there is information that is not accounted for in the CAPM model. For example, if a company has significantly higher growth prospects than other companies in its sector, but this potential growth is not captured by the CAPM’s beta coefficient, then the APT may suggest that investing in this company could be more profitable than investing in a company with a higher beta coefficient. On the other hand, under the CAPM model, the investment decision would be based solely on risk/return tradeoff which suggests that investing in a company with greater volatility (higher beta) should yield higher returns.