|Author||Topic: Beta for Bonds|
|While we use CAPM and beta to calculate the price of equity, theoretically could we use the same methodology to calculate beta for a bond? i.e. take a bond index and the price of a bond, regress etc to come up with a benchmark yield? And what do we do with the coupon??|
|With the CAPM, it's basically assumed that interest rates are fixed.
With bonds, you're primarily concerned with changes in interest rates (although credit downgrades etc are important).
Later (L2 ? L3 ? I forget) you'll see that duration plays the same sort of role for bonds as duration does for equities
|I think you had a small typo at the bottom of your response. Duration plays the same sort of role for bonds as BETA does for equities.|
|Capm is not for Bonds|
|You could use a beta for a bond, but by the time you had enough data to even derive a characteristic line, it would be too late OR the characteristic would have changed. Stocks have permno's and basically are infinite in terms of the time they exist. Bond's have a repayment date.|