Linked Questions

9 votes
4 answers
6k views

Is CAPM a cross sectional or time series model?

Given that CAPM is an equilibrium model, it prices the assets in absolute terms. Asset pricing studies use CAPM/ICAPM/CCAPM in a cross-sectional framework i.e. stocks with higher betas will have ...
Andy's user avatar
  • 443
5 votes
1 answer
19k views

how to interpret the GRS F test values?

I'm comparing the performance of Fama French three factor and Carhart four factor models. For the regression analysis, I have used the 25 Value Weighted portfolios sorted on size and B/M. The Table ...
rahaa's user avatar
  • 83
7 votes
1 answer
9k views

Fama Mac-Beth (1973) vs Fixed effect

Currently testing if monthly fund characteristics (size, capital flows, age, risk, persistence,...) explain funds abnormal returns. My data is set as a panel with 1000 equity mutual funds over the ...
user28909's user avatar
  • 488
5 votes
6 answers
3k views

CAPM - Expected vs. actual returns

I'm trying to calculate alpha in excess of CAPM and have seen a few slightly different calculations for CAPM. The primary difference I am seeing is that some equations use expected market returns (e....
santorch's user avatar
  • 115
1 vote
5 answers
2k views

If CAPM holds, should alpha be zero for all assets?

If CAPM holds, should alpha be zero for all assets?
Wendy's user avatar
  • 11
1 vote
1 answer
6k views

Testing the statistical significance of alphas in the CAPM

I am trying to test the statistical significance of the alphas in my trading strategy. However, I do not understand the difference between the alphas generated in R. To test the statistical ...
Mataunited17's user avatar
3 votes
1 answer
2k views

Does the CAPM use the single index model?

When we derive the CAPM (i.e. find equations for the capital market line and the security market line), we nowhere assume that the individual security return is linearly dependent on the marker return ...
Dhruv Gupta's user avatar
4 votes
1 answer
599 views

CAPM yields very poor fit (low R-squared). Is that normal?

I am playing around with the CAPM for a small European stock market (about 100 stocks). First, I use five years of monthly data (January 2017 to December 2021) to estimate betas for each firm using ...
Richard Hardy's user avatar
1 vote
1 answer
2k views

fama French regression in Eviews

I'm trying to figure out how to perform CAPM, the fama french 3 Factors and 5 Factors and the Carhart 4 factors regressions in Eviews. I downloaded all the data from French's website. The 3 Factors ...
rahaa's user avatar
  • 83
2 votes
1 answer
141 views

Why estimate the (known) market return in the cross-sectional regression of Fama-MacBeth?

Suppose we are given a dataset with $T$ time periods and $N$ assets or portfolios. We are interested in estimating and testing the CAPM. Using Fama-MacBeth style analysis, we first estimate $N$ time ...
Richard Hardy's user avatar