# CAPM

## 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.

```excel-formula
=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** | <p>Optional. Periodicity of the data, used for annualization. If you do not enter the argument, it defaults to 1. <br><em>e.g. Daily = 255, Monthly = 12,  Yearly = 1, Quarterly = 4.</em></p> |

### Output(s)

Row vector of CAPM expected return estimates.

## Example

![](https://258561627-files.gitbook.io/~/files/v0/b/gitbook-legacy-files/o/assets%2F-MK66-MGuoULhqCDXLwy%2F-MKuIS1nbFw1KMGIwGz2%2F-MKuIhKqT302WpCyqbYy%2Fimage.png?alt=media\&token=69d93296-58df-4216-8e06-e65705d936bc)

{% file src="<https://258561627-files.gitbook.io/~/files/v0/b/gitbook-legacy-files/o/assets%2F-MK66-MGuoULhqCDXLwy%2F-MQVAWpeWO6mxF13cK9n%2F-MKuFBvILcLpShxM7FbS%2FCAPM.xlsx?alt=media&token=0d430585-5c27-4ae6-91fc-3743ddcd0e3a>" %}
Example Workbook: CAPM
{% endfile %}