econ483lab02capm - Econ 483 Computer Exercise 2-CAPM Data...

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Econ 483. Computer Exercise 2-CAPM Data are on the Catalyst Discussion Board (check myUW). Name: Based on Problems from Ernst R. Berndt (1991): The Practice of Econometrics: Classic and Contemporary , Chapter 2). All commands and options used in this problem set can be found in econ483stata.doc. ( egen is an exception.) Comparing the Capital Asset and Arbitrage Pricing Models. An alternative model of asset pricing has been developed by Stephen A. Ross and has been called the arbitrage pricing model (APM). In our context the APM is of interest in that the CAPM might be viewed as a testable special case of a more general model. More speci°cally, in the APM, securities are allowed to respond di/erentially to economywide ±surprises², such as unexpected oil price shocks, or unexpected changes in the overall rate of in³ation. In this exercise, the CAPM is treated as a special case of the APM using the multivariate linear regression model. It is worth noting here that while typical applications of
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