The capital asset pricing model is a model that allows to determine the theoretical rate of asset returns required by an investor, given the asset systematic risk or market risk.

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Market returns below risk free rate

Let's say I'm using CAPM to estimate the cost of equity, so I need expected market returns for the calculations. The standard approach is simply to compute arithmetic mean of an index (or rather its ...
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41 views

Regressing using Fama-French portfolios with small amount of stocks

I'm doing some research for my thesis and I was wondering if it is possible to only use monthly stock price data for 22 stocks and construct Fama-French portfolios out of them and then regress? What ...
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46 views

CAPM betas at different horizons

When taking capital budgeting decisions appropriate cost of capital should depend on the horizon of the investment. So the beta of a stock, i.e. it's covariance with the market should depend on the ...
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66 views

Stock valuation/stock pitch and CAPM

If you were valuing a stock (say to pitch a stock for the buy side), you are looking for stocks that the market has mispriced. Your aim is to have a profitable long or short strategy. Can you use the ...
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406 views

Is this methodology to calculate Alpha using multi-factor regression model correct?

I am trying to find out Historical Alphas of a bunch of fund returns ${F_i}$ by Using Regression Model$(stepwise)$ with regressors as its underlying exposure-returns(risk-free rate subtracted) i.e. ...
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73 views

Liquidity Adjusted Asset Pricing Model

I have a data set with 4000 companies and I have calculated a liquidity measure of each of the company in the dataset as Where, Turnover is the monthly average ratio of daily volume to shares ...
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118 views

Best method for determining the market value of a stock before it is issued

I am attempting to determine the hypothetical market value of a stock for a company emerging from bankruptcy as of a date prior to actual the issuance of the stock. For example, let's say the formerly ...
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27 views

Change in portfolio when IPO announced

I'm wondering whether there would be a change to my answer of the change in portfolio when there is a new stock introduced. My investment strategy is to maximise expected return such that my standard ...
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Generalized method of moments concept in CAPM testing

In the course of my master thesis I’ve come across a paper by Carr and Wu (2009) where the authors evaluate whether returns on variance swaps can be explained by the simple CAPM. (really only market ...
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78 views

Risk-Free Rate In CAPM

Let's start out with the CAPM equation itself: $E(R_i) = R_{f1} + \beta_{i}(E(R_m) - R_{f2})$ Are there cases where one should choose a different $R_{f1}$ and $R_{f2}$ (Risk Free Rates Of Interest) ...
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Return, STD and CAPM based on Continuously compound return on daily prices

Mission: For some ETF, Get 1, 3, 5 years: Return STD CAPM parameters (alpha, beta) Reference if I calculated correctly: Yahoo finance performance & risk data Raw data: Daily adj. close ...
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Interpretation of the CAPM model under Stochastic Portfolio Theory framework

The CAPM under the Modern Portfolio Theory approach is given as: $$ R_i = \beta_i R_\pi $$ Where $R_\pi$ the portfolios expected excess returns Under the stochastic portfolio theory approach: $$ r_i ...
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382 views

what is a reasonable beta in CAPM?

I want to predict expected returns for assets using a CAPM, to calculate unexpected (unpredictable, idiosyncratic, non-systemic) returns in portfolios. My CAPM estimated on monthly total gross ...