The capm tag has no wiki summary.
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1answer
250 views
How to calculate unlevered beta
I have derived a firm's cost of equity using the WACC formula (see here), which means that the cost of equity has factored in the firms' debt (i.e. levered beta) and now I need to calculate the firm's ...
2
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1answer
130 views
Using cointegration to prove that a long-short strategy is market neutral (in CAPM sense)
I am trying to prove that a long-short strategy invested according to the cointegrated relationship from Engle-Granger's. So essentially I'm trying to show that the return $r_{XY}$ of the portfolio (X ...
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3answers
180 views
Why is the CAPM securities market line straight?
Let $\gamma$ be the expected return, in terms of its exponential growth rate, of the market asset. If we set $\gamma=\mu-\sigma^2/2$ as explained by the Doléans-Dade exponential, then the expected ...
2
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1answer
303 views
Using alpha to evaluate trading strategy
I have a trading strategy that generates returns $R_{t}$. I want to test the strategy by looking at the alpha:
$R_t - R_{f,t} = \alpha + \beta (R_{m,t} - R_{f,t}) + e_t$
I compare my alpha against ...
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0answers
103 views
Unsystematic/Idiosyncratic/Firm-specific volatility/variance in the market model?
I was asked to use idiosyncratic volatility as a regressor in a cross-sectional regression upon cross-sectional returns as the dependent variable. Returns can be thought of as the raw log stock return ...
2
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1answer
176 views
Average beta of index consitutents w.r.t. the index is 0.60
I have 1 year time series data of 300 constituents of the Australian All Ordinaries index (which is composed of 491 firms). The missing firms are mostly smaller firms.
I run the market model $R_{it} ...
2
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1answer
226 views
Unsystematic and systematic risk of a portfolio
I have 8 country stock indexes and 1 world stock index. I do not actually have time series data but I'm given the following data:
$\mu$, the vector of expected future returns for all 8 country ...
10
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1answer
273 views
Is Arithmetic Return Bias Basis of Low Vol Anomaly?
An observation in capital markets is that the connection between return and risk (measured as volatility) is not that straightforward (at least not as modern portfolio theory assumes). One interesting ...
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1answer
894 views
CAPM - Beta of zero and its implications on diversification
I don't know if this is the right forum in which to ask this question, but here goes. I'm working through Luenberger's Investment Science. The form of CAPM model given in the book is
$$\bar{r}_i - ...
6
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2answers
171 views
How well does CAPM beta track the risk of a particular market relative to world markets?
Can the CAPM beta of emerging markets be less than the beta of the developed markets?
As part of my research, I run regressions using market indices. I estimate the beta using a regression of MSCI ...
