-> The Capital Asset Pricing Model (CAPM) is a model assuming

that investors compose their asset portfolio on the basis of a trade-off

between the expected return and the variance of the return on their
portfolio.
This implies that each investor holds a so-called mean-variance
efficient portfolio, i.e., a portfolio that gives maximum expected
return for a given variance (level of risk).

-> For the generic asset i at time t it holds that E[rit ] - rf = �i (E[rmt ] -
rf )
where rmt is the market return and rf is the risk-free return, which we assume
to be time-invariant for simplicity

-> There are two sources of risk:

-specific / idiosyncratic risk: specific to the asset i. It can be
eliminated with portfolio diversification
-market / systematic risk: related to the market m. It cannot be
eliminated with portfolio diversification,
and is therefore more relevant

-> The coefficient �i is given by �i= C(rit,rmt)/ V(rmt)

It indicates how strong ?fluctuations in the returns on asset i are related to
movements of the market as a whole
The coefficient, usually called beta, is therefore a measure of market risk.
-> Since it is impossible to eliminate market risk through portfolio
diversification without affecting the expected return,
investors are compensated for bearing this source of risk through a risk premium
E[rmt - rf ] > 0

-> Asymptotic properties of the OLS regression model allow us to test the theory of
CAPM
Defi?ne the actual returns as expected returns plus shocks:
rit = E[rit ] + uit
rmt = E[rmt ] + umt
We can therefore rewrite the CAPM equation as
E[rit ] - rf = �i (E[rmt ] - rf ) = rit - rf = �i (rmt - rf ) + it

vedi slides

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name: <unnamed>
log: C:\Users\user\Downloads\capm.txt
log type: text
opened on: 17 Oct 2018, 14:52:37

. reg r_beghelli r_mib

 Source | SS df MS Number of obs = 522
-------------+---------------------------------- F(1, 520) = 136.20
Model | 3394.55288 1 3394.55288 Prob > F = 0.0000
Residual | 12960.0857 520 24.9232416 R-squared = 0.2076
-------------+---------------------------------- Adj R-squared = 0.2060
Total | 16354.6385 521 31.3908609 Root MSE = 4.9923

------------------------------------------------------------------------------
r_beghelli | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | .7266981 .062268 11.67 0.000 .6043703 .8490259
_cons | .1543732 .2185185 0.71 0.480 -.2749144 .5836608
------------------------------------------------------------------------------

. reg r_beghelli r_mib, noconstant

Source | SS df MS Number of obs = 522

-------------+---------------------------------- F(1, 521) = 136.18
Model | 3390.8199 1 3390.8199 Prob > F = 0.0000
Residual | 12972.5243 521 24.8992788 R-squared = 0.2072
-------------+---------------------------------- Adj R-squared = 0.2057
Total | 16363.3442 522 31.3474026 Root MSE = 4.9899

------------------------------------------------------------------------------
r_beghelli | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | .7262628 .062235 11.67 0.000 .6040004 .8485253
------------------------------------------------------------------------------

. reg r_caleffi r_mib, noc

Source | SS df MS Number of obs = 522

-------------+---------------------------------- F(1, 521) = 18.72
Model | 262.626667 1 262.626667 Prob > F = 0.0000
Residual | 7310.33147 521 14.0313464 R-squared = 0.0347
-------------+---------------------------------- Adj R-squared = 0.0328
Total | 7572.95814 522 14.5075826 Root MSE = 3.7458

------------------------------------------------------------------------------
r_caleffi | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | .2021207 .0467187 4.33 0.000 .1103405 .293901
------------------------------------------------------------------------------

. reg r_eni r_mib, noc

Source | SS df MS Number of obs = 522

-------------+---------------------------------- F(1, 521) = 946.26
Model | 4845.24101 1 4845.24101 Prob > F = 0.0000
Residual | 2667.72339 521 5.12039037 R-squared = 0.6449
-------------+---------------------------------- Adj R-squared = 0.6442
Total | 7512.96439 522 14.3926521 Root MSE = 2.2628

------------------------------------------------------------------------------
r_eni | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | .8681588 .0282223 30.76 0.000 .8127152 .9236023
------------------------------------------------------------------------------
. reg r_fca r_mib, noc

Source | SS df MS Number of obs = 522

-------------+---------------------------------- F(1, 521) = 448.24
Model | 10068.7102 1 10068.7102 Prob > F = 0.0000
Residual | 11702.9787 521 22.4625312 R-squared = 0.4625
-------------+---------------------------------- Adj R-squared = 0.4614
Total | 21771.6889 522 41.7082163 Root MSE = 4.7395

------------------------------------------------------------------------------
r_fca | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | 1.251493 .0591113 21.17 0.000 1.135367 1.367619
------------------------------------------------------------------------------

. reg r_unicredit r_mib, noc

Source | SS df MS Number of obs = 522

-------------+---------------------------------- F(1, 521) = 786.83
Model | 16300.6981 1 16300.6981 Prob > F = 0.0000
Residual | 10793.5688 521 20.7170226 R-squared = 0.6016
-------------+---------------------------------- Adj R-squared = 0.6009
Total | 27094.2669 522 51.9047258 Root MSE = 4.5516

------------------------------------------------------------------------------
r_unicredit | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | 1.592372 .0567682 28.05 0.000 1.480849 1.703895
------------------------------------------------------------------------------

. display (.726-1)/.062
-4.4193548

. display (1.592-1)/.057
10.385965

. reg r_unicredit r_mib

Source | SS df MS Number of obs = 522

-------------+---------------------------------- F(1, 520) = 785.22
Model | 16298.698 1 16298.698 Prob > F = 0.0000
Residual | 10793.5432 520 20.7568138 R-squared = 0.6016
-------------+---------------------------------- Adj R-squared = 0.6008
Total | 27092.2412 521 52.0004629 Root MSE = 4.556

------------------------------------------------------------------------------
r_unicredit | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | 1.592352 .0568255 28.02 0.000 1.480717 1.703988
_cons | -.0070061 .1994189 -0.04 0.972 -.3987718 .3847597
------------------------------------------------------------------------------

. reg r_fca r_mib

 Source | SS df MS Number of obs = 522
-------------+---------------------------------- F(1, 520) = 455.08 ->
all the coeff (a part from the constant) are =0 taking together.
Model | 10093.5833 1 10093.5833 Prob > F = 0.0000
The regression is making any sense better than explain the Y with the constant
only?
Residual | 11533.577 520 22.1799558 R-squared = 0.4667
Is a way to test the signigficance of the regression. ANOVA TEST
-------------+---------------------------------- Adj R-squared = 0.4657
Total | 21627.1603 521 41.5108643 Root MSE = 4.7096

------------------------------------------------------------------------------
r_fca | Coef. Std. Err. t P>|t| [95% Conf. Interval]
-------------+----------------------------------------------------------------
r_mib | 1.253099 .0587412 21.33 0.000 1.1377 1.368498
_cons | .5696983 .2061419 2.76 0.006 .1647249 .9746716
------------------------------------------------------------------------------

-> the constant is significant? the coeff are different from 1? = there are two
restictions

. test (r_mib=1) (_cons=0)

( 1) r_mib = 1
( 2) _cons = 0

F( 2, 520) = 12.98
Prob > F = 0.0000

-> F= f distribution. 2= number of restrictions. 520=522-2

-> p-value is below 5% -> reject null hp

. test (r_mib=1) (_cons)

( 1) r_mib = 1
( 2) _cons = 0

F( 2, 520) = 12.98
Prob > F = 0.0000

. test (r_mib) (_cons)

( 1) r_mib = 0
( 2) _cons = 0

F( 2, 520) = 230.80
Prob > F = 0.0000

-> we still reject null hp

-> if I omit the costant:

. test r_mib

( 1) r_mib = 0

F( 1, 520) = 455.08
Prob > F = 0.0000
-> t-test^2 = F

. display 21.33^2
454.9689

. log close
name: <unnamed>
log: C:\Users\user\Downloads\capm.txt
log type: text
closed on: 17 Oct 2018, 16:24:39
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