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How well does the CAPM work in practice? In class we discussed some empirical evidence regarding how the CAPM performs in practice. In addition, we
How well does the CAPM work in practice? In class we discussed some empirical evidence regarding how the CAPM performs in practice. In addition, we also discussed that in the real world there is a "Value Premium" (as explained in the previous question). In this question I want you to investigate two things: (a) does the value premium varies across industries (i.e. is it bigger/smaller in some industries relative to others), and (b) does the CAPM can explain the difference in the average returns (i.e. capture the value premium within industries) of these portfolios? In order to answer these questions please open again the Excel data file: Industry Value DataV2.xlsx, and take a look at the second worksheet with title "Industry Portfolios". In this worksheet, you have data with the excess monthly returns (i.e. Re RiRf, and in percentage, so, different from question 1, these are now excess returns, in excess of the risk free rate) for 6 portfolios for 3 industries. The 3 industries are: (1) Consumer Goods, (2) Ma
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