Few theories are more influential or important in driving financial markets as the inelegantly named capital asset pricing model. Too bad it does not appear to work very well.

The CAPM, as it is widely known, is a cornerstone of modern financial market analysis, studied like a rosary by analysts and executives at business school. Most financial directors use it to assess everything from the viability of a new project to their cost of capital. Most stock market analysts consider it an essential tool.