The Capital Asset Pricing Model: A Multi-Factor Empirical Analysis

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Student Presentation

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Michail Fragkias


The focus of our research is to measure the power of the single-factor capital asset pricing model (CAPM), in comparison to the three-factor and four-factor models. The CAPM measures the expected return of a risky asset by estimating a return premium over the risk-free rate of return. To examine how the idiosyncratic risks associated with asset price movements are incorporated into the expected rate of return on a given asset, we establish that in addition to market risk, book-to-market ratio, momentum and liquidity factors also constitute significant risk factors that affect the expected returns. Furthermore, the risk premiums associated with these additional factors are priced by the market.

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