Jensen [6] employed the instantaneous systematic risk concept to eliminate the problem associated with time horizon. Based upon the effective rate of return argument, Cheng and Deets [3] claimed that Jensen instantaneous risk is not independent of the time horizon used in the investment analysis. They have also proposed a so-called Cheng-Deets instantaneous risk to substitute for the Jensen instantaneous risk.Following the log normal distribution assumption, this paper has shown that Cheng-Deets instantaneous risk is identical to Jensen instantaneous risk. The relationship between finite systematic risk and instantaneous risk is also identified. The roles played by the effective and the nominal rate-of-return concepts in the capital asset pricing process are also clarified. It is shown that both Jensen and CD instantaneous risks are biased unless the investment horizon is instantaneous. A testable generalized CAPM is derived to test the instantaneous investment horizon assumption. Finally, 30 securities of the Dow- Jones industrial average were used to test the generalized CAPM derived in this paper.

S-L have derived a simultaneous equation CAPM to offer a robust test for the interdependent assumption of the single equation CAPM. However, their empirical results are subject to the multicollinearity problem associated with 2SLS. For improving their results, several alternative estimation methods are used to estimate a seven-equation system for the oil industry. In accordance with both the multicollinearity criterion and residual analysis, it is found the modified 2SLS is the most appropriate method to be used to estimate the S-L model. From the results obtained from the modified 2SLS, it is shown that the market rate of return still is a relatively important factor in predicting the movement of capital market in the simultaneous equation CAPM. After applying a better estimation method to the S-L simultaneous equation CAPM, it is shown that the S-L model has given us the interesting interrelationship of capital asset pricing within a particular risk class.

Cheng F. Lee, William P. Lloyd, The Capital Asset Pricing Model Expressed as a Recursive System: An Empirical Investigation, The Journal of Financial and Quantitative Analysis, Vol. 11, No. 2 (Jun., 1976), pp. 237-249