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CAPM Model and Beta

CAPM Model and Beta. By Hao Sun. Data. Financial and Food Stocks from S&P100 Index Include: BAC, BK, GS, JPM, MS, NYX, WFC, HNZ, KO, KFT, PEP Also used S&P100 Futures as the market index for CAPM model. Model. , where . , where , CAPM: , where . So,. Method.

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CAPM Model and Beta

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  1. CAPM Model and Beta By Hao Sun

  2. Data • Financial and Food Stocks from S&P100 Index • Include: BAC, BK, GS, JPM, MS, NYX, WFC, HNZ, KO, KFT, PEP • Also used S&P100 Futures as the market index for CAPM model

  3. Model • , where . • , where , • CAPM: , where . • So, .

  4. Method • We construct a portfolio with equal weight of and , where is the return on stock i, and is the return on S&P100 Index.

  5. Similarly, • We have: • Since Bi-power measure is jump-robust, we can find the contribution of jump by subtracting from .

  6. Numerical Results

  7. Calculations vs. Regression

  8. JPM 3-mth Moving Avg. R-Beta

  9. Food&Beverages

  10. Conclusion • Jump Contributions are not significant to beta. • In other words, market systematic risks are not affected jumps in prices of individual stocks. • So CAPM model will not be affected by outliers in returns as some papers claim (Martin, Simin, 2003) • During periods of financial stress, Financial firms tend to have a beta above 1. • On the contrary, the beta of Food&Beverage Providers remain low during financial stress. (Some even decrease) • In general, financial firms have higher beta.

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