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Dawid.szutowski 12-01-2015 03:50 AM

CAPM problem

I work on the daily data for public companies. I need to calculate daily expected returns for a company. For this purpose I use CAPM model.

The CAPM has such form: Ri - Rf = beta*(Rm-Rf)

Ri - return for a company (in my case the daily change of stock price)
Rf - risk free rate of return (in my case the return on 52 week t-bills divided by 365)
Rm - return of the market (in my case the daily change of the value of the main index)

I use 250 days estimation period. Therefore, I have all the data and need only to calculate the "beta".

I run the regression and I receive terrible R-square equalling 0,02.

Is there something I did wrong? Did you face similar problems? Should I apply any other model (I tried Fama and French 3 factor model and the results were similar)? Any suggestions?

Any help would be appreciated!

optionwarriors 12-25-2015 08:58 PM

Re: CAPM problem
Are you calculating the beta in excel? If so, are you running the regression for the individual stock versus the benchmark (S&P500)? (percent change versus percent change for 250 days)

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