CAPM and Factor Models

Objectives

• Describe risk and return in an empirical asset pricing setting
• Estimate risk factors using Excel

Reading

• Chapter 8: The CAPM
• Chapter 9: The CAPM
• Chapter 10: Arbitrage Pricing Theory

Assignment

• Estimate Beta

CAPM and APT Lecture

Andrew Lo @ MIT in 2008

The Capital Asset Pricing Model

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

Arbitrage Pricing Theory

• Multifactor Models by Michael McLaughlin @ Edspira

Fama and French Models

• Fama-French 3-Factor Model by Michael McLaughlin @ Edspira
• Fama and French 5-Factor Model
• Fama and French Data

q-factor Model

Optional Advanced Topics

• The Cross Section of Returns by John Cochrane @ UChicago
• Risk Premiums and Betas by John Cochrane @ UChicago
• Arbitrage Pricing Theory by John Cochrane @ UChicago
• Momentum and Reversal by John Cochrane @ UChicago in 2013