Gotta CAPM' All: An Empirical Study on the Validity of the CAPM Against Four Unique Assets

Abstract

This study investigates expected returns against actual and annualized (or CSE) returns on four unique assets, GOOGL, Silver, Bitcoin, and Pokemon Cards using the classic CAPM with historical and adjusted betas across varying time periods depending on the assets history. The data used in this paper was gathered mainly from Bloomberg Professional Services but also other reliable secondary sources. The Capital Asset Pricing Model is the found to be the preferred method when calculating pricing asset returns due to its simplistic nature. The paper used two different versions of beta for the CAPM Calculation, historical beta and adjusted beta models during periods of 8.5 years, 3 years and 1 year for GOOGL and Silver. Bitcoin periods were based on historical data since it was introduced, the periods that was used were 5.5 years, 3 years and 1 year. Pokemon Cards used different periods due to lack of consistent data points, the time-periods used were 5 months, 3 months and 1 month. All four assets used the same Risk-free rate which was Treasury Notes 1-year monthly rate. In this paper, various assets, time periods, and betas are used to empirically suggest the ideal way investors can use the CAPM. This research looks at the four different types of assets to predict their returns and what implications the returns have on investment in these assets.