MARKET IMPERFECTIONS AND THE CAPITAL-ASSET PRICING MODEL - SOME RESULTS FROM AGGREGATE UK DATA

This paper studies the relationship between private sector portfolios and asset returns in the UK. Utilizing a comprehensive monthly dataset covering 1972-85, we test the Sharpe-Lintner Black Capital Asset Pricing Model and investigate the role of market imperfections in explaining the rejection of this model. We find that UK data are not consistent with a simple model of certain market imperfections, but that there is evidence that imperfections do help explain asset returns. We show that the rejection of the model is largely attributable to the rejection of the symmetry restrictions which are fundamental to models of consumer and investor behaviour.