Social and Behavioral Sciences Commons^™

Systematic Risk-Factors Among U.S. Stock Market Sectors, Maksim V. Papenkov

Economics

The Capital Asset Pricing Model (CAPM) and its extensions are a family of empirical asset pricing models which partition risk as either "systematic" (market-wide) or "idiosyncratic" (stock-specific). Examples of systematic risk-factors include the market return, company size, and company value. Within the framework of the CAPM-family of models, it is assumed that the effects of these systematic risk-factors are homogenous among sectors. This paper develops an extension to the CAPM relaxing this assumption, by directly comparing these systematic risk-factors at the sector-level. Utilizing CRSP and Compustat data, systematic risk-factor premiums are estimated for each sector, which demonstrates heterogeneity, with respect …