The failure of neoclassical financial economics: CAPM and its pillars as an illustration

It is argued that the CAPM and its variants and extensions are theoretically invalid, empirically unsupported, and practically useless. The efficient market hypothesis and the rational expectations hypothesis, which are two pillars of asset pricing models and neoclassical finance in general, have been invalidated by the advent of the global financial crisis and the development of alternative paradigms such as behavioral finance. It is also argued that the mushrooming of asset pricing models that bear no relevance to reality has been sustained by the excessive mathematization of finance and the use of improper econometric procedures, including data mining.