The Capital Asset Pricing Model: A Multi-Factor Empirical Analysis
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.
Minor, Mac and Boo, Jeong-Hyun, "The Capital Asset Pricing Model: A Multi-Factor Empirical Analysis" (2015). College of Business and Economics Presentations. 3.