Periodic returns are widely used to estimate expected return when testing the CAPM. We show that in the original one-period CAPM, the linear relationship between beta and the expected periodic return is obtained only by adjusting the expected continuously compounded return, and the linearity is...

This paper offers a new understanding of the statistical results obtained by Black, Jensen, and Scholes (1972) and Miller and Scholes (1972) in their tests of the Capital Asset Pricing Model (CAPM). Numerical examples and simulations are used to illustrate how the empirical results of both...