Does CAPM predict the future value of a stock?

The Capital Asset Pricing Model (CAPM) is a foundational concept in finance used to determine the expected return on an investment relative to its risk, typically measured by beta. It provides a framework for evaluating the relationship between risk and expected return, based on market assumptions.

While CAPM estimates the expected return based on the risk-free rate, the expected market return, and the investment's beta, it does not predict the future value of a stock directly. Instead, it helps investors form expectations about returns given certain risk factors in a diversified portfolio. Therefore, while it can inform investment decisions, it does not provide a precise future stock price or value prediction.

This aligns with the assertion that CAPM does not, in itself, predict future stock values, which is why that answer accurately reflects the limitations of the model in forecasting stock prices. The future value of a stock can be influenced by numerous variables outside of what CAPM accounts for, making it inappropriate to claim that it effectively predicts future stock values.