The capital asset pricing model (CAPM) can be written as

E(R_i ) = R_f + _i [E(R_m) R_f ]

where,

ER_i = Expected return of investment

R_f = Risk-free rate

_i = Beta of the investment

ER_m = Expected return of the market

(ER_m - R_f) = Market risk premium

The first step in using the CAPM is to estimate the stocks beta using the market model.

(R _i - r _f )_t = + (R_M - r _f )_t + u_t

Using EViews, select two stock series[1] along with index values for the BIST as the proxy of the overall market and the treasury bond data standing for the risk-free rate[2]. Estimate the CAPM beta values for those stocks. What are your conclusions?

[1] The name of the first security starts with the first letter of your first name and the name of the second security starts the first letter of your surname. ( Name : B and Surname : K)

[2] Employ at least five years of monthly data of each variable for estimating betas