▁which ▁uses ▁psych ological ▁assumptions ▁to ▁provide ▁alternatives ▁to ▁the ▁C AP M ▁such ▁as ▁the ▁over conf idence - based ▁asset ▁pr icing ▁model ▁of ▁Kent ▁Daniel , ▁David ▁Hir sh le ifer , ▁and ▁A van id har ▁Sub rah many am ▁( 2 0 0 1 ). ▁ ▁The ▁model ▁does ▁not ▁appear ▁to ▁ade qu ately ▁explain ▁the ▁variation ▁in ▁stock ▁returns . ▁ ▁Emp ir ical ▁studies ▁show ▁that ▁low ▁beta ▁stock s ▁may ▁offer ▁higher ▁returns ▁than ▁the ▁model ▁would ▁predict . ▁Some ▁data ▁to ▁this ▁effect ▁was ▁presented ▁as ▁early ▁as ▁a ▁ 1 9 6 9 ▁conference ▁in ▁Buff alo , ▁New ▁York ▁in ▁a ▁paper ▁by ▁Fischer ▁Black , ▁Michael ▁J ensen , ▁and ▁My ron ▁Sch oles . ▁Either ▁that ▁fact ▁is ▁itself ▁rational ▁( which ▁saves ▁the ▁efficient - market ▁hypothesis ▁but ▁makes ▁C AP M ▁wrong ), ▁or ▁it ▁is ▁ir r ational ▁( which ▁saves ▁C AP M , ▁but ▁makes ▁the ▁EM H ▁wrong ▁– ▁indeed , ▁this ▁possibility ▁makes ▁vol at ility ▁ar bit rage ▁a ▁strategy ▁for ▁reli ably ▁be ating ▁the ▁market ). ▁ ▁The ▁model ▁assumes ▁that ▁given ▁a ▁certain ▁expected ▁return , ▁active ▁and ▁potential ▁share hold ers ▁will ▁prefer ▁lower ▁risk ▁( lower ▁variance ) ▁to ▁higher ▁risk ▁and ▁convers ely ▁given ▁a ▁certain ▁level ▁of ▁risk ▁will ▁prefer ▁higher ▁returns ▁to ▁lower ▁ones . ▁It ▁does ▁not ▁allow ▁for ▁active ▁and ▁potential ▁share hold ers ▁who ▁will ▁accept ▁lower ▁returns ▁for ▁higher