CAPM
Estimate expected returns using the Capital Asset Pricing Model. This is also known as the Equilibrium Returns.
Description
The capital asset pricing model (CAPM) is an asset valuation model describing the relationship between assets (or portfolios) and market prices. CAPM posits that the intercept of a regression equation between an instrument's returns and the returns of systematic factors is zero in an efficient market. This is a widely used classic model for asset pricing.
Syntax
The following describes the function signature for use in Microsoft Excel's formula bar.
Input(s)
marketReturns
Required. Time series of market portfolio returns.
assetReturns
Required. Time series or matrix of asset (or portfolio) returns.
rf
Optional. Risk-free rate. If you do not enter the argument, it defaults to zero.
rm
Optional. Expected market return. If you do not enter the argument it, defaults to the annualized historical average of the marketReturns time series.
dataPeriodicity
Optional. Periodicity of the data, used for annualization. If you do not enter the argument, it defaults to 1. e.g. Daily = 255, Monthly = 12, Yearly = 1, Quarterly = 4.
Output(s)
Row vector of CAPM expected return estimates.
Example
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