# 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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### 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....
1answer
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### Beta: Cumulative vs. Simple Returns

How would calculating Beta using cumulative returns differ from Beta calculated with monthly returns? Is one more appropriate to use than another? https://en.wikipedia.org/wiki/Beta_(finance)
1answer
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### Gibbons, Ross, Shanken Test derivation by MLE

I Am trying to derive the expression for the GRS test of the CAPM. I am following the book: The Econometrics Of Financial Markets by Campbell, Lo, McKinley (1997). Define $Z_t$ as an $N×1$ vector of ...
1answer
48 views

### Why is the CAPM Beta defined this way - Beta hedging

Let's say I have two equity indices X and Y. Assume they are negatively correlated with some leverage. I want to hedge X with Y. I have seen many ways of computing a beta to describes the ...
1answer
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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 ...
2answers
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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 ...
2answers
194 views

### 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 ...
1answer
94 views

### 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 ...
2answers
224 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 ...
0answers
37 views

### 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, ...
2answers
81 views

### 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 ...
0answers
44 views

### 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 ...
1answer
389 views