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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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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

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


  • Similarly,

  • We have:

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


Numerical Results


Calculations vs. Regression


JPM 3-mth Moving Avg. R-Beta


Food&Beverages


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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