The Dynamic CAPM

42 Pages Posted: 2 Apr 2019 Last revised: 5 Jun 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 can hedge risk at no cost, the dynamic risk premium of an asset is equal to its dynamic market beta times the dynamic risk premium of the market (Merton, 1973). We empirically test this dynamic CAPM relation on equity portfolios using both daily and monthly returns. We show that regressing an asset excess return onto the product of its dynamic beta and the market excess return yields intercepts of zero and a slope of one. This provides evidence that the dynamic CAPM cannot be rejected by the data, and therefore, that it can explain the cross-section of portfolio returns.

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

JEL Classification: D53, G11, G12

Suggested Citation

Hasler, Michael and Martineau, Charles, The Dynamic CAPM (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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