I see some place reference the S&P 500 index (SPY) as the risk-free rate and other place reference the 10-year Treasury yield as the risk-free rate. Which one is the correct one?
closed as off-topic by Helin, Alex C, Attack68♦, LocalVolatility, byouness Jun 23 '18 at 12:10
This question appears to be off-topic. The users who voted to close gave this specific reason:
- "Basic financial questions are off-topic as they are assumed to be common knowledge for those studying or working in the field of quantitative finance." – Helin, Alex C, Attack68, LocalVolatility, byouness
I assume you want to use CAPM that ralates e.g. a single stock to "the market" (often take to be the S&P500). In this model you need a "risk free rate". I think you do not make a mistake if you take government bonds as the risk free rate. But do not simply use 10Y. The maturity should depend on the time index t in the Security Characteristic Line. If it is a quarterly index use the 3M government bond rate.
See this link for the equation I am refering to: