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.

=CAPM(marketReturns, assetReturns, rf, rm, dataPeriodicity)

Input(s)

Argument	Description
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

59KB

CAPM.xlsx

Open

Example Workbook: CAPM