Describing model relations: The case of the capital asset pricing model (CAPM) family in financial economics

Melissa Vergara Fernandez*, Conrad Heilmann, Marta Szymanowska

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

2 Citations (Scopus)


The description of how individual models in families of models are related to each other is crucial for the general philosophical understanding of model-based scientific practice. We focus on the Capital Asset Pricing Models (CAPM) family, a cornerstone in financial economics, to provide a descriptive analysis of model relations within a family. We introduce the concepts of theoretical and empirical complementarity to characterise model relations. Our complementarity analysis of model relations has two types of payoff. Specifically regarding the CAPM, our analysis reveals why this model family, which has been empirically contested, has yet remained popular and important: the different models that have been added over time have made new empirically and theoretically complementary contributions to the model family. More generally, our analysis reveals the dynamic character of model-based scientific practice. Characterising relations between models as theoretically and/or empirically complementary yields three hitherto underappreciated lessons: (i) actual modelling purposes are not always primarily epistemic, (ii) a model's individual import is relative, not absolute, and (iii) there is an important interplay between theory and data models. Faithfully characterising scientific modelling in this way facilitates subsequent analysis of models' epistemic import.
Original languageEnglish
Pages (from-to)91-100
Number of pages10
JournalStudies in History and Philosophy of Science
Publication statusPublished - Feb 2023

Bibliographical note

Funding Information:
We thank the audiences at the 2021 European Philosophy of Science Association and the 2021 British Society for the Philosophy of Science conferences; the EIPE research seminar, in particular Roger Backhouse and William Peden; the philosophy and methodology of economics seminar at Universidad del Valle; and the Erasmus Initiative Dynamics of Inclusive Prosperity, for their comments. We also thank the two anonymous referees for their thoughtful and helpful comments. We are grateful to the Erasmus Initiative Dynamics of Inclusive Prosperity for supporting the Values in Finance research project.

Publisher Copyright:
© 2022 The Author(s)

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