# 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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### Why is there inconsistency in WACC vs unlevered return?

To evaluate an enterprise we can discount free cash flow by either the unlevered required rate of return or the WACC. With Tax we have: $WACC=R_e \frac{E}{E+D}+R_f\frac{D}{E+D}(1-t)$ where $R_e$ is ...
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### Investors degree of risk aversion in capm model

I am a bit confused about one assumption of the CAPM. My professor said that in the CAPM model all investors share the same utility function and the same degrees of risk aversion. Then as a final ...
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### How to test the CAPM empirically and how do I use this Kenneth French dataset?

I'd like to test whether CAPM holds. My guess is that I first need to find a market portfolio. Then, over some period, I calculate its excess return $R_M - r_f$. Then I calculate the return of some ...
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### Best practice approach for computing beta

I was wondering how one should choose parameters such as "frequency" of returns (daily, monthly etc.), "time frame" (1 or 3 or 5 years of historical data etc), benchmark (same of the portfolio or the ...
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### 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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### Testing pricing errors on the SML for significance with R

I have been attempting to do a cross-sectional test of the CAPM. To do this, i have estimated the betas of 49 industry portfolios with time -series data. And then done a cross sectional regression, ...
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### Estimated betas and optimal portfolio

I ran a regression on 20 assets to estimate their beta with different methods. I would like to see the differences of these estimation differences in terms of mean-variance optimal portfolio. How can ...
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### Deriving Single Index Model (Market Model)

is the return of the stock of observation is the return of the reference market is the regression coefficient between the observed stock and the reference market is the regression intercept between ...
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### Examination of Betting Against Beta

http://pages.stern.nyu.edu/~lpederse/papers/BettingAgainstBeta.pdf In this article the authors explain a theory/strategy called Betting Against Beta. My background is more in Math rather than finance ...
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### The utility function in Betting Against Beta

http://pages.stern.nyu.edu/~lpederse/papers/BettingAgainstBeta.pdf Betting Against Beta strategy is presented in the link above. Most of the theory and derivation is based on a utility function given ...