The CAPM Holds

40 Pages Posted: 2 Apr 2019 Last revised: 4 Apr 2019

See all articles by Michael Hasler

Michael Hasler

University of Toronto - Rotman School of Management

Charles Martineau

University of Toronto - Rotman School of Management and UTSC Management

Date Written: March 29, 2019

Abstract

When investors' hedging demands are equal to zero, the conditional risk premium of an asset is equal to its conditional market beta times the conditional risk premium of the market (Merton, 1973). We empirically test this dynamic CAPM relation on portfolios and individual stocks using both daily and monthly returns. We show that regressing an asset excess return onto the product of its conditional beta and the market excess return yields an intercept of zero, a slope of one, and an R2 of about 80%. That is, the data lend support to the null hypothesis that the dynamic CAPM holds.

Keywords: Capital asset pricing model, cross-section of stock returns

JEL Classification: D53, G11, G12

Suggested Citation

Hasler, Michael and Martineau, Charles, The CAPM Holds (March 29, 2019). Available at SSRN: https://ssrn.com/abstract=3353903 or http://dx.doi.org/10.2139/ssrn.3353903

Michael Hasler

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Charles Martineau (Contact Author)

University of Toronto - Rotman School of Management and UTSC Management ( email )

105 St-George
Toronto, Ontario M5S3E6
Canada

HOME PAGE: http://charlesmartineau.com

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