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October 12, 2025Open Access

Rethinking Beta: A Causal Take on CAPM

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This analysis demonstrates how CAPM should be viewed as associational, indicating that beta may not reliably predict asset returns.

CAPM should be interpreted as associational, not causal, highlighting beta as a proxy for underlying market influences.
The analysis reveals that contemporaneous betas act more like proxies, showing weak economic significance in market-to-stock interactions.
Traditional beta-neutral portfolios can still face exposure to macro or sectoral shocks, impacting risk management strategies.
By restructuring our approach, risk management should emphasize clearly defined causal paths rather than fixed factor models.

Noal Cohen (2025) studied this question.

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