Erasmus university rotterdam

Versions of the Capital Asset Pricing model

The traditional CAPM

According Graham and Harvey (2001) most practitioners use this version of the CAPM. The Sharpe (1964) & Lintner (1965) the formula for the expected return in the traditional version of the CAPM can be written as:
[1]
Where:

is the return on asset

is the risk-free interest rate

is the return on the market portfolio,

is the systematic risk of asset relative to the market portfolio.
The coefficient , is estimated by the following time-series regression of the weekly average excess returns to asset , , against weekly excess market returns, .
= 1,…..n and t = 1,…T [2]

Where is the systematic risk of asset .