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Empirical Test for CAPM: 500 Standard Pool data

Abstract

In this paper, we test the CAPM (Capital Asset Pricing Model) with the data set of Standard Pool 500 index companies in 2006. With SPSS as the soft tool, we estimate the linear model which comes from the basic form of CAPM. Our conclusion tells that the relationships among ROE (Return of Equity), basic interest and market portfolio rate of return seems not exist in the real world, which could be concluded from the theatrical model of CAPM. However, the regression result could be improved to a great extent after some controlling variables are added to primary model, and these controlling variables include market value growth rate, asset growth rate and the debt growth rate of the company. 

Introduction
CAPM (Capital Asset Pricing Model) was initially proposed by D. Markowitz and F. Sharpe in 1960s, it establishes the basis for how to carry out the security pricing in capital market, and proves to be an important milestone in financial and management science. The given hypothesis that analyzes CAPM covers the following aspects: The securities market is valid and authorized, which means the information is completely corresponding; No hazard securities. Investors could freely borrow or loan capital according to risk-free interest; the total risk of investment can be figured out by (variance) or (standard deviation), system hazard can be denoted by index β; All the investors are rational, taxes are not imposed on the securities and they are free of trade cost, no frication exists in the securities market, moreover, in reality, investors are imposed to pay their taxes according to governmental tax rate and the taxes are based on the source of their income (interest, securities, income, etc) and the sum of their income. Exchanges of securities should pay procedure charge, commission and other fee according to the volume of the exchange and customers’ confidence. Besides all the above hypotheses which are quite explicit, there are some implied hypotheses：
The benefit rate of each sort of securities obeys the rules of normal distribution; the cost of the exchange can be omitted; each piece of capital can be divided infinitely, which means in the combinations of the investments, the investors can hold any part of a certain kind of securities.
In this format, The format of the model of CAPM can be figured out as follows: , and in this format, .
E(rp) denotes the benefit rate in expectation of the combinations of investment, Rf represents risk-free reward rate, E（Rm）represents the benefit rate in expectation of the combinations of the markets, β represents the index of the system risk of a certain combination ,the model of CAPM chiefly represents the relationship of single securities or combinations of investments with the benefit rate of the risk of the system, which means the benefit rate of a single combination of investment is equivalent to risk-free benefit rate plus the risk premium price. 
The capital asset pricing theory holds that three elements in the following determine the necessary reward rate that is required by an investment:
(1)Risk-free reward rate, which regarding public debt investment (bank deposit) as risk-free investment;
(2) The average reward rate of the market, which c本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。