Well…capm in a perfect market it has sense.
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if people weren't chasing ghost over their intrinsec value and pushing the high beta stocks higher and higher maybe capm will work better (and viceversa with bored bussines and low beta stocks). I am sure that if we take only the stocks with the correct intrinsec valuation (hard to find without error
) and we will apply the model other results will appear = market efficiency anyway -
betas are difficult to estimate pretty well in terms of stock (the issue and error is huge here) you can take and up down approach as Damodaran do for example to estimate it better and reduce the issue.
of course there are several more factors that affect all of this theory…just my point