Policy Tensor

The Dynamic Price of Market Risk

Are we testing CAPM right?

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Policy Tensor
Feb 05, 2021
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In order to compute the dynamic or conditionally expected excess return on a bunch of assets, we need two ingredients. First, we need a risk-free rate. The standard practice is to take the yield prevailing at the short end of the yield curve as the risk-free rate of return. I am persuaded by Howell that, because duration risk assets like the 10-year not…

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