By Hao Sun Data Financial and Food Stocks from SampP100 Index Include BAC BK GS JPM MS NYX WFC HNZ KO KFT PEP Also used SampP100 Futures as the market index for CAPM model Model ID: 571756
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Slide1
CAPM Model and Beta
By
Hao
SunSlide2
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 modelSlide3
Model
, where
.
, where
,
CAPM: , where .So, .
Slide4
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.
Slide5
Similarly,
We have:
Since Bi-power measure is jump-robust, we can find the contribution of jump by subtracting
from
.
Slide6
Numerical Results
Stock
Contribution of Jump
BAC
0.0034
(0.2533)BK-0.0239(0.2905)GS0.0232(0.2690)JPM0.0253(0.2560)MS0.0461(0.3268)NYX0.0328(0.3918)WFC-3.933e-004(0.2532)Slide7
Calculations vs. Regression
Stock
Realized Beta
Beta from monthly Reg.
BAC
0.8717(0.4386)1.4797(0.0357)BK0.8482(0.3790)1.1124(0.0206)GS0.8807(0.3895)1.3664(0.0282)JPM0.9444(0.3702)1.3648(0.0251)MS1.2513(0.5228)1.7246(0.0528)NYX1.0328(0.5141)1.6044(0.0444)WFC0.7906(0.4348)0.9318(0.0266)Slide8
JPM 3-mth Moving Avg. R-BetaSlide9Slide10Slide11
Food&Beverages
Stock
Realized
Beta
Bi-Power Beta
HNZ0.4277(0.2284)0.4676(0.2750)KFT0.3173(0.2535)0.3515(0.2945)KO0.5645(0.2754)0.5715(0.3276)PEP0.4974(0.2612)0.5461(0.3356)Slide12
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.