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Capital Asset Pricing Model – investigation and Testing

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  • Huang Xian Yu

Abstract

This paper aims to develop testing model based on logistic regression with three factors to investigate the equity premium portion of CAPM model. It includes (1) literature review on equity premium of CAPM (Capital Asset Pricing Model) model; (2) Set up logistic regression model; (3) Data collection from Datastream; (4) Use of Matlab in regression; (5) Data input in logistic regression; (6) Create a homemade model to prove the nonexistence of equity premium puzzle. Together with investigating the proper definition of risk-free rate, this paper investigates and tests the basic model of CAPM.JEL classification numbers: G1Keywords: CAPM model, risk-free rate, risk premium, logistic regression, volatility index.

Suggested Citation

  • Huang Xian Yu, 2017. "Capital Asset Pricing Model – investigation and Testing," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(6), pages 1-5.
    • Handle: RePEc:spt:apfiba:v:7:y:2017:i:6:f:7_6_5
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    References listed on IDEAS

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    7. Rajnish Mehra, 2003. "The Equity Premium: Why is it a Puzzle?," NBER Working Papers 9512, National Bureau of Economic Research, Inc.
    8. Mehra, Rajnish & Prescott, Edward C., 2003. "The equity premium in retrospect," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 14, pages 889-938, Elsevier.
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