This coursework involves testing the CAPM theory
You will use one market index and 12 companies’ daily data and these companies should be from at least three different sectors. The sample period should be the latest 2 years in length (for example, from Jan 2014 to Jan 2016). The required data can be downloaded from Yahoo finance: http://uk.finance.yahoo.com/
Data collection for twelve companies
Considering three different sectors
Collecting Risk-free rate
Using data for the entire sample period, run a time-series regression for each of the selected companies. Specifically, regress each company return onto a constant and a market excess return. Verify, in each case, there exists a significant beta.
Report the t-statistic for alpha and the R-squared for each company.
Discuss your results and the merits and demerits of CAPM analysis.
Discuss whether your results are sensitive to sector characteristics.
You need to do all the above tasks and submit your results in a report form (references, format, academic writing style etc. minimum 1500 words).
For CAPM, we use simple regression to estimate the β values. Here the dependent variable is stock return of the individual firms () and the independent variable is the market return ().
In the above simple regression, the coefficient of the market return is
In words, the coefficient represents
Covariance (market return (), individual stock return ())/variance of market return () = Since , the coefficient of the market return in the regression analysis is actually
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