Lecture27-2004 - Lecture XXVII Empirical Applications of...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Lecture XXVII Empirical Applications of Capital Market Models I. Capital Asset Pricing Models A. A basic question that must be addressed in the application of both CAPM and APT models is whether a risk-free asset exists (and whether that risk- free asset is constant over time). B. In the basic Sharpe-Lintner CAPM model [ ] [ ] ( ) [] , if i m mf im im m ER R R Cov R R Var R β =+ = with minimum algebra [ ] [ ] ( ) i m ER R R −= redefining [ ] ii f iii m i mm f ZE RR ZZ α βε =− ⇒=+ + Constructing a dataset of 43 stocks from the Center for Research into Security Prices (CRSP) dataset, using the return on the Standard and Poors 500 portfolio and using the 3 month treasury bill as the market portfolio I estimated the following s i and s i Table 1. Sharpe-Lintner Results 11499 12140 15553 18542 19166 19749 21135 i 0.00651 -0.00267 0.00757 0.00223 0.00092 -0.00465 0.00214 (0.01459) (0.00522) (0.00324) (0.00494) (0.00539) (0.01091) (0.00513) i 1.03884 1.39450 0.30513 0.99853 1.08365 -0.00807 0.93258 (0.31641) (0.11317) (0.07028) (0.10708) (0.11686) (0.23661) (0.11118) C. An alternative to the model presented by Sharpe and Lintner is the zero- beta model suggested by Black: [ ] [ ] [ ] [ ] ( ) 00 i m where 0 m R is the return on the zero-beta portfolio, or the minimum variance portfolio that is uncorrelated with the market portfolio (See my notes from FIN 6446 on the derivation of the zero-beta portfolio).
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 5

Lecture27-2004 - Lecture XXVII Empirical Applications of...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online