The Capital Asset Pricing Model

Objective

• Explain risk in the CAPM context
• Explain market efficiency in a CAPM context

Reading

• Chapter 9: Benchmarked Costs of Capital
• Chapter 10: The Capital Asset Pricing Model

Assignment

• Estimate Beta

Capital Asset Pricing Model

Beta

• CAPM Introduction by Michael McLaughlin @ Edspira
• What is Beta? by Michael McLaughlin @ Edspira
• Portfolio Beta by Michael McLaughlin @ Edspira

Market Beta as Risk

• Systematic vs Idiosyncratic Risk by Michael McLaughlin @ Edspira
• Security Market Line by Michael McLaughlin @ Edspira
• Capital Market Line by Michael McLaughlin @ Edspira

Equity Risk Premium

• Lecture by Aswath Damodaran @ NYU

Estimate Beta

• Example: Stock Returns from FINRA
• Example: Stock Returns from Bloomberg
• Example: Data Preparation

Example: CAPM Regression

Example: Regression Results

Optional Advanced Videos

CAPM and APT Lecture

Andrew Lo @ MIT in 2008