The Security Market Line bias

The Security Market Line bias Order Description The Security Market Line has historically been flatter than the Capital Asset Pricing Model (CAPM) would predict (see Figure 1 below). This means that low beta stocks earn higher abnormal returns (alphas) than high beta stocks. Discuss potential explanations for this finding. International Finance (ECO-M024) Essay Topic: The Security Market Line has historically been atter than the Capital Asset Pricing Model (CAPM) would predict (see Figure 1 below). This means that low beta stocks earn higher abnormal returns (alphas) than high beta stocks. Discuss potential explanations for this nding. Figure 1: Fama, E., F., French, K., R., (2004). The Capital Asset Pricing Model: Theory and Evidence. Journal of Economic Perspectives, 18, 25-