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Financial Portfolio Selection using Multi-factor Capital Asset Pricing Model and Importing Options Data

Stata Journal, Vol. 13, No. 3, pp. 603-617, 2013

13 Pages Posted: 31 Aug 2013 Last revised: 28 Sep 2013

Mehmet F. Dicle

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business

Date Written: February 24, 2013

Abstract

Diversification and portfolio selection is an integral part of finance teaching. In this study, multi-factor Capital Asset Pricing Model (CAPM) is estimated for components of Dow Jones Composite Index using data from Yahoo! Finance. Along with CAPM's Beta, other statistics are calculated that are common decision criteria for portfolio selection such as historic standard deviation (total risk), total return, average daily return, Sharpe and Treynor measures. Two new commands are introduced, components and portfolio, that automate the entire process. A third new command, fetchyahoooptions, is provided to download and parse equity options data from Yahoo! Finance web pages and, optionally, to calculate the implied volatilities for the downloaded options.

Keywords: Stata, finance, financial data, multi-factor CAPM, Beta, diversification, portfolio selection, Sharpe, Treynor, options, implied volatility

Suggested Citation

Dicle, Mehmet F., Financial Portfolio Selection using Multi-factor Capital Asset Pricing Model and Importing Options Data (February 24, 2013). Stata Journal, Vol. 13, No. 3, pp. 603-617, 2013. Available at SSRN: https://ssrn.com/abstract=2317589

Mehmet Dicle (Contact Author)

Loyola University New Orleans - Joseph A. Butt, S.J. College of Business ( email )

6363 St. Charles Avenue
New Orleans, LA 70118
United States

HOME PAGE: http://researchforprofit.com

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