Market efficiency: A theoretical distinction and so what?

With the aid of some simplifying assumptions, the capital asset pricing model comes to dramatic conclusions about practical matters, such as how to choose an investment portfolio and how to value financial assets. As illustrated in this article, when one particular, clearly unrealistic CAPM assumption is replaced by a more real-world version, some of the dramatic, practical conclusions of CAPM no longer follow. This result has implications for financial practice, research, and pedagogy.