Advances in Economics, Management and Political Sciences
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Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
Series Vol. 55 , 01 December 2023
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An Empirical Test Based on the Validity of the Capital Asset Pricing Model of American Firms
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Abstract
Nowadays, quantitative finance has become a more and more mainstream research direction, and the origin model of quantitative finance is the capital asset pricing model (CAPM)created by William Sharp and others. This paper mainly studies the feasibility of CAPM model for the American market, in order to prove the universality and accuracy of CAPM model, and analyzes the relevant errors. The research object of this paper is 59 randomly selected listed companies in 11 industries in S&P500 index, and the regression is carried out by the ordinary least square method, and the goodness of fit is obtained, so as to prove its universality. The data comes from Yahoo Finance. Through data analysis, this paper believes that CAPM model is universal, but it has low adaptability for some special industries, so it is necessary to introduce more variable factors or carry out non-linear regression to improve the accuracy of its prediction.
Keywords
Capital Asset Pricing Model (CAPM), Ordinary Least Squares (OLS), linear regression
References
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3. Fama E, James D M.Risk, return and e-quilibrium: empirical tests[J]. Journal of Finance, 1973,25(2):383-417
4. Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425-442.
5. Fama, E. F., & French, K. R. (1997). Industry costs of equity. Journal of Financial Economics, 43(2), 153-193.
6. Chen, N., Roll, R., & Ross, S. A. (1986). Economic forces and the stock market. Journal of Business, 59(3), 383-403.
7. Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1-22.
Data Availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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- Volume Title
- Proceedings of the 2nd International Conference on Financial Technology and Business Analysis
- ISBN (Print)
- 978-1-83558-157-5
- ISBN (Online)
- 978-1-83558-158-2
- Published Date
- 01 December 2023
- Series
- Advances in Economics, Management and Political Sciences
- ISSN (Print)
- 2754-1169
- ISSN (Online)
- 2754-1177
- DOI
- 10.54254/2754-1169/55/20230967
- Copyright
- 01 December 2023
- Open Access
- This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited