Capital Asset Pricing Model (CAPM) is probably the most widely used model in assets pricing. There are several reasons behind its popularity. First, it is quite simple since it is a one-factor linear model. Second, it is quite easy to implement this one-factor model. Any interested reader could download historical price data for a listed company and market index data to calculate return first, and then estimate the market risk for the stock. Third, this simplest one-factor asset pricing model could be served as the first model for other more advanced ones, such as Fama-French 3-factor, Fama-French-Carhart 4-factor, and Fama-French 5-factor models introduced in the next chapter (Chapter 7, Multifactor Models and Performance Measures). In this chapter, the following topics will be covered:
Introduction to CAPM
How to download data from Yahoo Finance
Rolling beta
Several Python programs to estimate beta for multiple stocks
Adjusted beta and portfolio beta...