# Questions tagged [capm]

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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### How to scale t-bond yield movements on a chart to visualize its relative impact to the pricing of other assets?

How does one scale the 10yr yield on a chart to visualize its relative impact to asset valuations? I.e., so that the risk-free rate moving from 1->2% shows as a much larger movement than 11->12%....
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### Event study using sector indices

Analyzing Covid-19's impact on different sectors I would like to use sector indices. Can you use CAPM or similar to calculate abnormal returns of indices or does it only work with stock prices?
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### Inverse Covariance Matrix Transformation from CAPM

Beginning with the CAPM model we have (with a risk free rate of 0%): $r_i=\beta_i (r_m)+\varepsilon_i$ with $\varepsilon_i$ the diversifiable risks per assets The variance matrix: \$\Omega = \beta'\...
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### Arbitrage in a Single Index Model

Simple question really, but I'm very confused by the starting point. Let's assume that we have a portfolio whose excess returns can be described by the following equation from the single index model: ...
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### Assumptions of the CAPM

As to my understanding, the CAPM assumes that all investors behave as described in the portfolio theory. Consequently, all investors hold a combination of the risk-free investment and the efficient ...
1 vote
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### Relation between CAPM and Portfolio Theory

can any of you explain to me in simple terms how CAPM and portfolio theory are related to each other? To my understanding: Portfolio theory helps to select the "right" stocks under risk/...
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### How can beta be negative? [closed]

I've been reading about the security market line and the definition of beta as $$\beta_i = \frac{Cov(R_i, R_m)}{Var(R_m)}$$ for any asset (doesn't have to be an efficient portfolio), and have read ...
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### Risk free rate's role in CAPM

I don't understand what is the mathematical and financial role of risk free rate in the CAPM formula . Why do we need to add 10 years treasury yield to the formula then substract it again from the ...
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### How is CAPM used to price an asset once it has been used to derive the assets expected return?

As I understand it (correct me if I'm wrong) the theoretical price of an asset should be the present value of all future cash-flows that it is expected to yield, discounted at the risk-free rate. I am ...
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### Low volatility in factor regression

Let's say we are working with the standard Fama-French 3 factor model and we want to add a low volatility factor. Is it alright to add a low volatility risk premium in a model such as the CAPM or FF3. ...
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### Cashflow Risk vs Discount Risk

Studying asset pricing, I often hear the terms cashflow risk and discount risk but I'm not sure what they mean? The Campbell/Shiller (1988) decomposition includes cashflows (future dividends) and ...
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