Financial Econometrics Evaluation of CAPM Model Assignment Sample

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Financial Econometrics: Evaluation of CAPM Model

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Financial Econometrics: Evaluation of CAPM

Model

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Table of Contents

INTRODUCTION ...........................................................................................................................2

CONCEPTUAL FRAME ..................................................................................................................9

DATA ANALYSIS........................................................................................................................10

REFERENCES .............................................................................................................................13

APPENDIX .................................................................................................................................12





List of tables Table 1 Stock beta coefficient estimates (Time-series regression outputs).............................11 Table 2. Result output from the cross-sectional regression .....................................................13





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INTRODUCTION

Almost certainly, among the most widespread questions posed before an investor is

where to invest the money owned, so as to retain or not losing the present value, and at the

same time to increase the wealth. As per the critical global events happening around the

world, economy has itself become much volatile now. Such critical condition is encountered

in the financial sector much frequently, where troughs and peaks are quite evident in

economies.

In financial economics, the proposition stating that a properly regulated security

market bears a vital package for economic services is widely accepted now. Among the

numerous vital functions of security market or the stock exchange comprise of requisites for

liquidity and an unremitting market for shares from the standpoint of investors. For

economy’s growth, in general , a vigorous stock market is considered as indispensable factor

and is expected to add in productivity. An efficient pricing mechanism in a stock market is

the driving force to channelize the savings into commercial investment and thus, make it

possible for an optimal allocation of funds. This implies that the pricing mechanism assures a

suitable return on investment. Therefore in stock markets, pricing function is considered to be

important and is regarded as a subject of broad research. According to the literature survey

for stock market, majority of the researches are based on the asset pricing models like capital

asset pricing model (CAPM), Merton (1973) inter-temporal CAPM, the arbitrage pricing

theory (APT) and Breeden (1979) version of consumption based CAPM.





CAPM has been the heart of all the studies. Here, the main objective is to review the

conceptual framework of this model, also, to test the efficiency of the CAPM model in the

context of any stock market. CAPM model is developed by different authors in almost the

same time frame. These authors are Treynor (1961), Sharpe (1964), while Lintner (1965),

Mossin (1966). Further the model has been extended by Black (1972) and he clarified it.

Certainly, there exist numerous models in Finance and Economics to estimate risks,

and the expected returns for both risky as well as risk-free assets. In addition to this, there are

also many models, which are capable of estimating the effects of each individual asset on the

entire investment portfolio and thus imply the concept of optimal portfolio management.

In the present paper, Capital asset pricing model has been chosen, which is one of the

most extensively used approach for valuation of an asset, constructing efficient investment

portfolios and forecasting the future rates of return of such asset. So the research project is

primarily devoted to the efficiency test of the Capital Asset Pricing Model. Main Objectives

of the report are:

Identify the relationship between the expected returns and risks

Spot the interdependence amongst variables





CAMP MODEL

In Finance, theoretically, CAPM is the method used to determine a appropriate rate of

return required for an asset, while adding that to an existing well-diversified portfolio, given

the non-diversifiable risk of the asset. CAPM has been the model employed for the most of

the real world analysis available and used for the longest time period. In finance, this method

is considered to be the standard one for investment analyses (Bossaerts, 2003).

An investor thinks about several things before investing in any instrument. Every

financial instrument has its own risk and return and so investor must know about risks

involved in any investment and expected return from it. A fundamental concept of finance

indicates that risk and return from investment are correlated to each other which means more

the risk involved in an investment, higher the rate of return (Brigham and Houston, 2009).

So as an investor every individual deserves a rate of return that compensates him for taking

risk by investing in an instrument. Most of the Investors do a long analysis by using various

risk management techniques before taking an investment decision so that they can minimize

the risk. Risk management techniques help an investor about knowing and minimizing risks

involved in an investment (Doherty, 2000).

Capital Asset and Pricing Model (CAPM) is one of the key analyses which are done

by an investor before taking an investment decision. This model provides a formula which

calculates the expected return on an investment based on involved risk level in it. This model

declares that the riskier the stock, the superior its expected return.

The below given economic specification of this model describes that the risk free rate

plus beta times the difference of the return on the market and the risk free rate.

− = + − +





The expected values of each side of this model can be seen as below:

− = + [ − ]

It looks like CAPM but the asset pricing model imposes the following constant on

expected returns:

− = + [ − ]

OR

= 0





Value of the beta factor for market portfolio is always 1 as from the above expression

it is evident that the covariance of the market portfolio and itself is simply the variance of

market. Riskier assets are expected to have values of betas greater than 1, whereas the less

risky assets will have a beta less than one (Damodaran, 2003)

There are three basic inputs as described by Professor Damodaran (2002) for CAPM.

These are as follows:

Return on the risk-free asset: Risk free asset is the one for which the expected return

are known by the investor with certainty in a defined time horizon taken for the

analysis. Here, the risk free assets can be taken as the government bonds, T-bills etc.

Risk premium for the asset: Risk premium is the additional return demanded by the

investor for investing in the market portfolio including all risky assets. In accounting

terms, risk premium is the opportunity cost for not investing in risk-free asset.

Beta: It measures the additional risk contributed by the asset to the overall market

portfolio.

There are two key importance of CAPM,

1. This model helps investors in measuring and evaluating portfolio risk and expected

return of the investment.

2. On the basis of this model risk can be classified as either systematic, that is

unavoidable due to the nature of the market itself diversifiable or diversifiable risk

which can be avoided by balanced investing (Brigham and Ehrhardt, 2011).





CONCEPTUAL FRAME

Theoretical CAPM model is given by the following equation:

− = + − +

Taking the expectation of both sides:

− = [ ] + − + [ ]

+ 0 − = + −

− = + −

Theoretical constraint for the above equation is that:

= 0

Thus, − = −

This implies that the expected excess return on security holds a linear relationship

with the security’s beta. Here, beta is the systematic risk of security in the market portfolio.

This model can also be derived with statistical technique of least square estimate.

Thing making CAPM model indifferent from the statistical model is that CAPM imposes the

constraint of alpha being zero. To test the efficiency of the model, betas of particular

securities should be examined for explaining the cross sectional differences in the average

returns. For this, following cross sectional regression equation can be considered:

− = + ∗ +

Now, for testing the efficiency of the CAPM model,

1.

2.

= 0

= ℎ





Through regression using SPSS software, for all the 30 stocks with respect to the

market portfolio (S&P 500 index), thirty different betas, alphas, and residuals of such stocks

are derived.

All this terms are further used to run the cross-sectional regression, to evaluate

whether these betas are linked to the expected values of return predicted by the CAPM

model. Form of the cross-sectional regression is as follows:

− = + + ε

At the start, the mean returns for each stock will be calculated. In the second

regression, mean returns are treated to be the dependent variable. Then these mean returns are

regressed with respect to the previously estimated betas. For being CAPM efficient, the

coefficients of the regression must be or at least not significantly differ from the following:

= 0

= −

Cross-sectional regression must be checked for heteroscedasticity. For this, the

regression run must consist of the same dependent variable, but with new independent

variables.

DATA ANALYSIS

Research has included two parts. First one, as shortly mentioned in the previous

section, includes estimation of betas of each security by using 30 ranges of observations for

thirty stocks collected over 36 months’ time periods. Below table demonstrates values of Beta

for each security as calculated. Values of the estimated beta range between 0.118 and 0.858

with a standard deviation of 0.185. Values are statistically significant at 95% level.





Table 1 Stock beta coefficient estimates (Time-series regression outputs)

Company symbols Beta estimates

0.8090

0.8580

0.7380

0.6910

0.7260

0.6610

0.5630

0.7160

0.7240

0.7570

0.7170

0.3550

0.3790

0.6950

0.3980

0.3570

0.6280

0.1320

0.4290

0.5520

0.4980

0.6150

0.7950

0.5020

0.6260

0.6020

0.7050

0.5270

0.1180

0.6310

AA

AXP

BA

CAT

DD

DIS

G.E

HD

HPQ

IBM

INTC

JNJ

KO

MCD

MMM

MRK

MSFT

PG

T

UTX

WMT

XOM

JPM

PFE

TRV

BAC

CSCO

CVX

UNH

VZ





Cross-sectional regression has provided following results:

A linear curve has been traced. Descriptions of the curve are given in the below table:

Model Description

Model Name MOD_1

Dependent Variable

1

1

Mean returns

Equation Linear

Beta Independent Variable

Constant Included

Unspecified Variable Whose Values Label Observations in Plots

Table 2. Result output from the cross-sectional regression

Coefficient

Value

γ0 γ1

-0.023 -0.004

R-Squared: 0.006

F-statistic is 0.165 on 1 and 28 degrees of freedom

As per the mentioned requisites, gamma-0 must be zero and in line to this requisite,

the obtained value of intercept or the constant is not significantly different from zero or

almost equal to zero. Thus, CAPM hypothesis should not be rejected on the basis of intercept

criterion only.

REFERENCES

Books

Bossaerts, P., 2003. Testing CAPM in Real Markets: Implications from Experiments. California Institute of Technology.

Brigham, E. F. and Ehrhardt, M. C. 2011. Financial Management: Theory and Practice, 13 th

Ed. USA: Cengag Learning.

Damodar, N., 2003. Basic Econometrics, 4 th

Ed. United States Military Academy, West Point.

Doherty, N. A. 2000. Integrated Risk Management: Techniques and Strategies. USA: McGraw Hill Professional.





Economic research, 2013. 5-Year Treasury Constant Maturity Rate (GS5). [online] Available

through: <http://research.stlouisfed.org/fred2/series/GS5> [Accessed on 15 2013].

th

Jan,

Gill, J., and Johnson, P., 2002. Research Methods for Managers. 3rd ed. London: SAGE Publications Ltd.

Mertens, E., 2002. The CAPM and Regression Tests. University of Basel.

Michilidis, G., Tsopoglou, S., Papanastasiou, D. and Mariola, E., 2006. Testing the Capital Asset Pricing Model (CAPM): The Case of the Emerging Greek Securities Market. International Research Journal of Finance and Economics, 4.

Rschner, M. K. 2008. Limitations of Capital Asset Pricing Model. Germany: GRIN Verlag.

SMR, 2013. DOW JONES 30 COMPANIES. [Online] Available through: <

http://www.stockmarketsreview.com/companies_dowjones30/> [Accessed on 15 Jan, 2013].

th

Yahoo finance, 2013. [online] Available through: < http://in.finance.yahoo.com/> [Accessed th

on 15 Jan, 2013].





APPENDIX

DOW 30 Index constituents (SMR, 2013)

Company

1 MMM 3M Co

2 AA Alcoa Inc

3

4

AXP American Express Co

T AT&T Inc

5

6

BAC Bank of America Corp

BA Boeing Co

7

8

9

CAT Caterpillar Inc

CVX Chevron Corp

CSCO Cisco Systems Inc

DD E. I. du Pont de Nemours and Co

XOM Exxon Mobil Corp

GE General Electric Co

HPQ Hewlett-Packard Co

HD Home Depot Inc

INTC Intel Corp

IBM International Business Machines Co...

JNJ Johnson & Johnson

JPM JPMorgan Chase and Co

MCD McDonald's Corp

MRK Merck & Co Inc

MSFT Microsoft Corp

PFE Pfizer Inc

PG Procter & Gamble Co

KO The Coca-Cola Co

TRV Travelers Companies Inc

UTX United Technologies Corp

UNH UnitedHealth Group Inc

VZ Verizon Communications Inc

WMT Wal-Mart Stores Inc

DIS Walt Disney Co

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30





T-bill return for four weak (Economic research, 2013) Title: 5-Year Treasury Constant Maturity Rate

Series ID:

Source:

Release:

Seasonal Adjustment:

Frequency:

Units:

GS5

Board of Governors of the Federal Reserve System

H.15 Selected Interest Rates

Not Seasonally Adjusted

Monthly

Percent

Date Range:

Last Updated:

Notes:

2002-01-01 to 2005-12-01

2013-01-08 4:01 PM CST

Averages of business days. For further information regarding treasury

constant maturity data, please refer to

http://www.federalreserve.gov/releases/h15/current/h15.pdf and

VALUE DATE

01-01-02 4.34

4.3

4.74

4.65

4.49

4.19

3.81

3.29

2.94

2.95

3.05

3.03

3.05

2.9

2.78

2.93

2.52

2.27

2.87

3.37

3.18

3.19

3.29

3.27

3.12

3.07

2.79

3.39

3.85

3.93

3.69

3.47

3.36

3.35

3.53

3.6

3.71

3.77

4.17

4

01-02-02

01-03-02

01-04-02

01-05-02

01-06-02

01-07-02

01-08-02

01-09-02

01-10-02

01-11-02

01-12-02

01-01-03

01-02-03

01-03-03

01-04-03

01-05-03

01-06-03

01-07-03

01-08-03

01-09-03

01-10-03

01-11-03

01-12-03

01-01-04

01-02-04

01-03-04

01-04-04

01-05-04

01-06-04

01-07-04

01-08-04

01-09-04

01-10-04

01-11-04

01-12-04

01-01-05

01-02-05

01-03-05

01-04-05

01-05-05

01-06-05

01-07-05

01-08-05

01-09-05

01-10-05

01-11-05

01-12-05

3.85

3.77

3.98

4.12

4.01

4.33

4.45

4.39





Realized Rates of Return for 30 stocks, 1 risk-free asset, and S&P 500 Index (Yahoo finance, 2013)

Date AA AXP BA CAT DD DIS GE HD HPQ IBM INTC

01-12-04 -7.59% 1.19% 2.39% 6.51% 8.23% 4.33% 3.85% 2.36% 5.25% 4.60% 4.53%

01-11-04

01-10-04

01-09-04

02-08-04

01-07-04

01-06-04

03-05-04

01-04-04

01-03-04

02-02-04

02-01-04

01-12-03

03-11-03

01-10-03

02-09-03

01-08-03

01-07-03

02-06-03

01-05-03

01-04-03

03-03-03

03-02-03

02-01-03

02-12-02

01-11-02

01-10-02

03-09-02

01-08-02

01-07-02

03-06-02

01-05-02

01-04-02

01-03-02

01-02-02

5.05%

-3.25%

3.77%

1.54%

-3.00%

5.49%

2.31%

-11.37%

-7.42%

10.13%

-10.08%

15.84%

4.43%

20.64%

-8.37%

3.42%

8.91%

3.61%

7.28%

19.16%

-5.49%

4.50%

-13.22%

-10.83%

16.57%

14.30%

-23.08%

-7.26%

-17.94%

-5.22%

3.24%

-9.82%

0.46%

5.24%

4.96%

3.38%

2.87%

-0.47%

-2.19%

1.55%

3.56%

-5.58%

-2.75%

3.04%

7.48%

5.75%

-2.61%

4.39%

0.00%

2.00%

5.91%

0.35%

10.05%

14.22%

-1.06%

-5.48%

0.49%

-8.96%

7.04%

16.94%

-13.54%

2.26%

-2.72%

-14.58%

3.67%

0.33%

12.39%

1.68%

-0.37%

-1.50%

0.61%

1.79%

5.87%

2.34%

-4.83%

2.74%

2.20%

-5.84%

-1.06%

11.97%

-2.91%

9.63%

-0.95%

-3.81%

-7.26%

0.39%

8.95%

18.29%

-3.59%

-14.87%

-9.04%

-4.87%

11.01%

29.36%

-18.74%

-10.60%

-8.50%

-11.08%

10.43%

-16.44%

-1.07%

1.04%

13.66%

0.64%

10.66%

-1.06%

-7.03%

5.43%

-3.06%

-1.24%

4.38%

-3.05%

-5.45%

9.16%

3.78%

6.92%

-4.15%

6.48%

21.95%

6.70%

-0.85%

7.61%

4.71%

6.86%

-3.10%

-8.38%

22.13%

10.78%

-14.70%

-2.40%

-7.90%

-6.36%

-4.29%

-3.33%

2.43%

10.37%

6.53%

0.16%

1.29%

-0.58%

-3.50%

2.84%

1.42%

1.71%

-6.35%

3.51%

-4.33%

10.71%

3.50%

0.99%

-10.58%

2.62%

5.54%

-1.18%

-0.13%

9.46%

5.95%

-2.22%

-10.67%

-4.97%

9.07%

14.34%

-10.51%

-3.02%

-5.61%

-3.46%

4.17%

-5.64%

0.67%

6.88%

6.59%

11.82%

0.45%

-2.74%

-9.44%

8.62%

1.91%

-7.82%

-5.83%

10.55%

2.86%

2.03%

1.96%

12.27%

-1.61%

-6.45%

10.98%

0.46%

5.32%

9.65%

-0.20%

-2.54%

7.27%

-16.67%

18.67%

10.30%

-3.46%

-11.53%

-6.17%

-17.54%

-1.15%

0.45%

0.35%

9.22%

3.64%

1.59%

3.03%

-1.41%

2.66%

4.74%

3.88%

-1.86%

-6.15%

-2.71%

8.56%

8.74%

-1.13%

-2.71%

1.44%

3.97%

-0.82%

0.58%

-2.54%

15.44%

6.06%

4.77%

-4.99%

-9.51%

7.36%

2.46%

-17.69%

-6.34%

10.84%

-6.14%

-1.27%

-15.65%

-2.86%

4.09%

1.84%

4.79%

7.24%

8.67%

-4.19%

-1.80%

2.08%

-5.82%

3.08%

2.39%

-0.07%

-3.26%

-0.84%

16.41%

-0.78%

3.08%

-5.77%

2.12%

15.49%

15.47%

4.18%

12.19%

-12.96%

-8.82%

-8.58%

10.66%

-20.63%

6.61%

-15.92%

-11.77%

-10.10%

-4.62%

-2.68%

-0.18%

7.16%

-0.47%

5.27%

-11.23%

-4.52%

-0.26%

7.80%

-13.74%

0.93%

-4.55%

3.60%

6.03%

-2.56%

15.23%

-2.48%

-5.85%

-0.58%

9.62%

19.61%

4.87%

-1.43%

-8.94%

0.26%

-10.48%

23.32%

35.39%

-12.56%

-5.11%

-7.43%

-19.57%

11.67%

-4.69%

-10.47%

-9.01%

5.21%

4.68%

1.23%

-2.52%

-1.23%

-0.49%

0.67%

-3.99%

-4.83%

-2.60%

7.07%

2.37%

1.36%

1.31%

7.71%

1.13%

-1.52%

-6.28%

3.89%

8.24%

0.62%

-0.12%

0.89%

-10.83%

10.31%

35.39%

-22.66%

7.31%

-2.22%

-10.50%

-3.76%

-19.47%

6.00%

-8.94%

0.72%

10.93%

-5.76%

-12.53%

-11.65%

-3.35%

11.16%

-5.44%

-6.85%

-4.20%

-4.74%

-4.45%

1.85%

19.74%

-3.75%

14.92%

19.65%

-0.06%

13.30%

12.95%

-5.57%

10.30%

0.56%

-25.43%

20.82%

24.59%

-16.73%

-11.13%

2.81%

-33.83%

-3.42%

-5.89%

6.50%

-18.47%

Mean

returns 0.34%

0.8090

1.59%

0.8580

-0.24%

0.7380

2.42%

0.6910

0.77%

0.7260

1.23%

0.6610

0.40%

0.5630

0.00%

0.7160

0.57%

0.7240

0.23%

0.7570

-0.23%

0.7170 Beta





Date JNJ KO MCD

4.29%

7.41%

4.01%

3.74%

-1.77%

5.80%

-1.55%

-3.05%

-4.70%

0.99%

9.93%

3.65%

-3.14%

4.15%

6.17%

5.04%

-2.59%

4.29%

17.81%

9.48%

18.31%

6.20%

-4.38%

-11.46%

-13.05%

3.56%

2.53%

-25.69%

MMM

3.11%

3.06%

-3.00%

-2.90%

0.45%

-8.50%

6.45%

-1.80%

5.64%

4.94%

-0.92%

-6.98%

7.57%

0.65%

14.19%

-3.04%

2.09%

8.70%

1.98%

0.87%

-3.07%

3.73%

1.17%

1.01%

-5.04%

2.79%

15.43%

MRK

16.33%

-10.53%

-5.13%

-25.98%

-0.83%

-4.54%

1.20%

0.62%

6.36%

-7.36%

0.99%

3.05%

14.78%

-8.24%

-12.58%

1.33%

-3.82%

-8.72%

9.65%

-4.47%

6.23%

4.57%

-4.79%

-2.15%

-4.11%

9.51%

18.68%

-8.85%

MSFT

-0.31%

6.80%

1.18%

1.29%

-3.90%

-0.27%

8.92%

0.35%

4.82%

-6.01%

-4.06%

1.05%

6.46%

-1.65%

-5.44%

4.81%

0.40%

3.02%

4.16%

-3.75%

5.65%

2.16%

0.17%

-8.21%

-10.37%

7.89%

22.24%

-10.85%

PG T UTX

5.89%

5.52%

-0.61%

-0.56%

0.82%

2.22%

8.12%

-1.50%

-0.03%

-6.31%

-3.23%

0.81%

10.58%

1.60%

9.59%

-3.71%

7.04%

6.21%

3.77%

10.90%

6.97%

-1.37%

-7.51%

2.65%

-0.82%

1.67%

9.19%

-4.89%

WMT

1.69%

-3.44%

1.35%

1.03%

-0.42%

0.99%

-5.81%

-1.99%

-4.51%

0.44%

10.61%

1.52%

-4.50%

-5.61%

5.72%

-5.62%

5.84%

4.16%

2.19%

-6.59%

8.25%

8.43%

0.55%

-5.35%

-6.15%

0.65%

8.75%

-7.80%

XOM

0.02%

4.69%

1.86%

4.82%

0.18%

4.25%

2.67%

2.30%

2.30%

-1.38%

4.03%

-0.51%

13.26%

-0.34%

-0.07%

-2.93%

6.70%

-0.93%

-1.32%

4.13%

0.71%

2.74%

0.29%

-2.26%

0.40%

4.08%

5.49%

-9.99%

01-12-04

01-11-04

01-10-04

01-09-04

02-08-04

01-07-04

01-06-04

03-05-04

01-04-04

01-03-04

02-02-04

02-01-04

01-12-03

03-11-03

01-10-03

02-09-03

01-08-03

01-07-03

02-06-03

01-05-03

01-04-03

03-03-03

03-02-03

02-01-03

02-12-02

01-11-02

01-10-02

03-09-02

5.14%

3.81%

3.64%

-3.04%

5.65%

-0.76%

-0.02%

3.64%

6.54%

-5.91%

1.35%

3.40%

4.79%

-1.57%

1.62%

-0.10%

-3.83%

0.18%

-4.87%

-3.16%

-2.60%

10.33%

-1.77%

-0.20%

-5.79%

-2.63%

8.63%

-0.41%

5.95%

-2.68%

1.52%

-9.91%

1.92%

-13.11%

-1.20%

1.52%

0.56%

1.18%

1.46%

-2.99%

9.12%

0.72%

8.00%

-0.78%

-3.23%

-3.13%

2.35%

12.78%

-0.19%

1.24%

-0.58%

-7.72%

-3.97%

-1.36%

-3.08%

-5.60%

2.98%

4.50%

-4.99%

-3.31%

7.34%

-3.76%

0.98%

1.90%

1.37%

2.29%

1.42%

1.68%

3.77%

-2.09%

6.40%

6.34%

-0.67%

-0.95%

-2.88%

2.20%

1.36%

8.78%

-4.33%

0.06%

1.65%

-4.42%

-0.61%

0.82%

-3.37%

7.78%

-3.33%

-1.15%

3.30%

-0.66%

11.54%

7.78%

3.96%

-5.31%

4.28%

-0.92%

9.76%

0.19%

12.14%

-8.21%

13.51%

-3.51%

11.90%

13.09%

8.83%

-9.06%

-12.27%

-4.26%

-3.10%

15.08%

-12.85%

-7.92%

-

11.98%

-0.23% 01-08-02

01-07-02

03-06-02

01-05-02

01-04-02

01-03-02

01-02-02

Mean returns

Beta

3.62%

0.66%

-14.83%

-3.60%

-1.68%

6.65%

6.21%

0.55%

0.3550

2.12%

-10.82%

1.20%

0.10%

6.20%

10.75%

8.29%

0.19%

0.3790

-3.99%

-13.00%

-4.97%

5.42%

2.32%

6.35%

-3.97%

0.98%

0.6950

1.86%

-2.05%

-10.74%

5.07%

-5.63%

-5.59%

3.66%

-0.92%

0.3570

2.25%

-12.29%

7.46%

-2.57%

-13.34%

3.34%

-8.40%

0.09%

0.6280

-0.38%

0.18%

0.50%

-0.79%

0.59%

6.27%

3.79%

1.09%

0.1320

-10.31%

-7.73%

5.50%

-4.01%

-7.57%

4.99%

12.70%

1.17%

0.4290

-14.21%

2.36%

-1.43%

-1.48%

-5.44%

1.70%

6.55%

1.46%

0.5520

8.74%

-10.60%

1.81%

-3.15%

-8.88%

-1.02%

3.37%

-0.15%

0.4980

-2.97%

-10.14%

2.48%

-0.03%

-8.36%

6.12%

6.41%

1.11%

0.6150

2.31%

-1.95%

0.21%

9.37%

-2.48%

6.83%

1.45%

0.3980





Date JPM PFE TRV

2.22%

7.41%

2.75%

-4.10%

-6.43%

-8.56%

2.72%

-2.44%

2.18%

-5.71%

1.46%

6.25%

7.68%

-2.69%

2.94%

7.38%

-1.16%

-3.67%

0.60%

6.52%

7.97%

3.95%

-5.45%

-4.12%

-7.81%

13.53%

14.23%

-4.65%

-2.54%

-19.81%

-8.00%

-14.44%

8.63%

-5.62%

9.42%

0.02%

BAC

2.55%

3.32%

3.37%

-2.71%

5.82%

0.45%

2.80%

3.28%

-0.61%

-0.19%

0.58%

1.27%

7.74%

-0.38%

-2.95%

-0.54%

-4.01%

4.46%

7.44%

0.18%

10.80%

-2.55%

-1.16%

0.70%

0.20%

0.39%

9.42%

-8.14%

5.37%

-5.47%

-6.44%

4.58%

6.57%

6.37%

2.41%

1.57%

CSCO

3.05%

-2.43%

6.14%

-3.49%

-10.33%

-11.74%

5.94%

7.00%

-11.32%

1.79%

-9.94%

6.13%

6.72%

8.49%

6.84%

2.33%

-1.81%

16.08%

2.34%

9.42%

15.52%

-7.13%

4.58%

2.06%

-12.25%

33.43%

6.74%

-24.19%

4.80%

-5.44%

-11.64%

7.73%

-13.44%

18.63%

-27.95%

0.65%

CVX

-3.82%

3.69%

-1.10%

10.05%

2.78%

1.62%

4.11%

-0.41%

4.23%

-0.66%

3.19%

-0.06%

15.04%

2.07%

3.97%

-1.93%

2.04%

-0.11%

1.77%

14.10%

-2.82%

0.73%

0.74%

-3.15%

-0.79%

0.17%

-2.36%

-9.64%

3.11%

-15.24%

1.43%

1.39%

-3.94%

6.89%

1.66%

1.11%

UNH

6.25%

14.43%

-1.81%

11.50%

5.15%

1.04%

-4.61%

6.15%

-4.60%

3.98%

1.85%

4.63%

7.95%

5.91%

1.12%

1.82%

-5.10%

3.66%

4.75%

4.13%

0.50%

10.59%

-5.66%

5.26%

2.52%

-10.44%

4.27%

-1.28%

0.76%

-4.25%

0.83%

3.43%

14.88%

5.48%

-2.53%

2.64%

VZ S&P 500

3.01%

4.45%

1.29%

1.00%

0.25%

-3.22%

1.85%

1.71%

-1.89%

-1.32%

1.35%

1.97%

5.04%

1.09%

5.35%

-1.09%

2.06%

1.81%

1.06%

5.48%

8.45%

0.22%

-1.35%

-2.46%

-5.66%

6.17%

8.22%

-10.48%

0.69%

-7.88%

-7.38%

-0.60%

-5.81%

3.32%

-1.79%

0.43%

rf

01-12-04

01-11-04

01-10-04

01-09-04

02-08-04

01-07-04

01-06-04

03-05-04

01-04-04

01-03-04

02-02-04

02-01-04

01-12-03

03-11-03

01-10-03

02-09-03

01-08-03

01-07-03

02-06-03

01-05-03

01-04-03

03-03-03

03-02-03

02-01-03

02-12-02

01-11-02

01-10-02

03-09-02

01-08-02

01-07-02

03-06-02

01-05-02

01-04-02

01-03-02

01-02-02

Mean

3.62%

-2.47%

-2.01%

0.38%

6.03%

-2.86%

5.24%

-2.01%

-9.64%

2.26%

5.46%

6.89%

3.77%

-1.39%

5.59%

0.30%

-2.37%

3.56%

4.02%

11.95%

25.60%

4.51%

-2.84%

-1.35%

-4.65%

21.36%

11.11%

-28.04%

5.77%

-25.61%

-5.63%

2.41%

-0.59%

21.86%

-14.09%

1.32%

-3.17%

-3.50%

-5.41%

-6.33%

2.78%

-6.78%

-3.00%

-0.69%

2.01%

-4.36%

0.51%

3.69%

5.22%

6.77%

4.02%

1.51%

-9.90%

-2.31%

10.08%

1.34%

-1.32%

4.53%

-1.79%

-0.19%

-3.04%

-0.37%

9.44%

-12.26%

2.67%

-7.56%

1.16%

-4.47%

-8.52%

-2.99%

-1.40%

-0.96%

-1.73%

5.43%

0.24%

0.33%

1.83%

7.69%

4.63%

-8.35%

4.34%

-4.69%

3.99%

6.21%

6.84%

-2.26%

4.73%

-8.13%

0.91%

-10.43%

4.23%

1.26%

6.89%

2.22%

-9.66%

-0.31%

-7.47%

10.88%

39.25%

-11.45%

-6.07%

-16.99%

-6.62%

7.19%

-12.23%

-1.52%

0.99%

0.35%

3.60%

3.53%

3.35%

3.36%

3.47%

3.69%

3.93%

3.85%

3.39%

2.79%

3.07%

3.12%

3.27%

3.29%

3.19%

3.18%

3.37%

2.87%

2.27%

2.52%

2.93%

2.78%

2.90%

3.05%

3.03%

3.05%

2.95%

2.94%

3.29%

3.81%

4.19%

4.49%

4.65%

4.74%

4.30%

3.38%

returns

Beta 0.7950 0.5020 0.6260 0.6020 0.7050 0.5270 0.1180 0.6310





Beta estimates

Coefficients a

Unstandardized

Coefficients

Standardized

Coefficients

Model B Std. Error Beta t Sig.

.065

.000

1 (Constant) .024 .013

.237

1.911

7.896 MP 1.875 .809

a. Dependent Variable: AA

Coefficients a

Unstandardized Standardized

Coefficients Coefficients

B Model Std. Error

.007

Beta t Sig.

.011

.000

1 (Constant) .019 2.696

9.615 MP 1.266 .132 .858

a. Dependent Variable: AXP

Coefficients a



B Model Std. Error

.014

Beta t Sig.

.454

.000

1 (Constant) .010 .757

6.288 MP 1.593 .253 .738

a. Dependent Variable: BA





Unstandardized

Coefficients

Standardized

Coefficients

Model

1

B Std. Error Beta t Sig.

.670

.000

(Constant) -.005 .012

.217

-.430

3.917 MP .851 .563

a. Dependent Variable: G.E

Coefficients a



B Model Std. Error

.013

Beta t Sig.

.565

.000

1 (Constant) .007 .582

5.897 MP 1.417 .240 .716

a. Dependent Variable: HD

Coefficients a



B Model Std. Error

.016

Beta t Sig.

.132

.000

1 (Constant) .025 1.546

6.023 MP 1.820 .302 .724

a. Dependent Variable: HPQ

Coefficients a


Coefficients Model Coefficients t Sig.





B Std. Error

.013

Beta

1 (Constant) .015 1.172

6.654

.250

.000 MP 1.597 .240 .757

a. Dependent Variable: IBM

Coefficients a



B Model Std. Error

.019

Beta t Sig.

.194

.000

1 (Constant) .025 1.326

5.911 MP 2.103 .356 .717

a. Dependent Variable: INTC

Coefficients a



B Model Std. Error

.009

Beta t Sig.

.080

.036

1 (Constant) -.017 -1.805

2.184 MP .386 .177 .355

a. Dependent Variable: JNJ

Coefficients a



B Model Std. Error

.011

Beta t Sig.

.106 1 (Constant) -.018 -1.660





Coefficients a

Unstandardized

Coefficients

Standardized

Coefficients


.740

.000

1 (Constant) -.004 .012

.215

-.334

4.642 MP .998 .628

a. Dependent Variable: MSFT

Coefficients a



B Model Std. Error

.007

Beta t Sig.

.006

.451

1 (Constant) -.020 -2.911

.762 MP .098 .129 .132

a. Dependent Variable: PG

Coefficients a



B Model Std. Error

.015

Beta t Sig.

.958

.010

1 (Constant) .001 .053

2.731 MP .787 .288 .429

a. Dependent Variable: T

Coefficients a





Unstandardized

Coefficients

Standardized

Coefficients

Model

1

B Std. Error Beta t Sig.

.927

.001

(Constant) .001 .010

.181

.092

3.801 MP .689 .552

a. Dependent Variable: UTX

Coefficients a



B Model Std. Error

.010

Beta t Sig.

.102

.002

1 (Constant) -.017 -1.682

3.300 MP .626 .190 .498

a. Dependent Variable: WMT

Coefficients a



B Model Std. Error

.008

Beta t Sig.

.569

.000

1 (Constant) -.004 -.575

4.478 MP .631 .141 .615

a. Dependent Variable: XOM

Coefficients a







B Std. Error

.013

Beta

1 (Constant) .034 2.568

7.531

.015

.000 MP 1.890 .251 .795

a. Dependent Variable: JPM

Coefficients a



B Model Std. Error

.010

Beta t Sig.

.010

.002

1 (Constant) -.026 -2.725

3.338 MP .596 .178 .502

a. Dependent Variable: PFE

Coefficients a



B Model Std. Error

.012

Beta t Sig.

.826

.000

1 (Constant) -.003 -.222

4.614 MP 1.059 .230 .626

a. Dependent Variable: TRV

Coefficients a







Coefficients a

Unstandardized

Coefficients

Standardized

Coefficients


.011

.000

1 (Constant) .041 .015

.285

2.705

4.671 MP 1.332 .631

a. Dependent Variable: VZ

Second regression Analysis report

Model Summary and Parameter Estimates

Dependent Variable: mean excess return ( −

Equatio Model Summary

)

Parameter Estimates

Constant b1 n R Square F df1

1

df2

28

Sig.

.687 Linear .006 .165 -.023 -.004

The independent variable is beta.




Financial Econometrics Evaluation of CAPM Model Assignment Sample

Economy & Finance

Transcript of Financial Econometrics Evaluation of CAPM Model Assignment Sample