Pre- Epidemic and Post-Epidemic Comparison of Firm Market Risk Sensitivity Based on CAPM Model

Abstract

According to the Capital Asset Pricing Model (CAPM), the expected return and the risk of the security are related. Since January 2020, due to the COVID-19, numerous businesses failed to adjust to the new reality and grew dangerous and unpredictable for their investors. The goal of this research is to assess how the pandemic might impact asset pricing and company betas. This study has utilized empirical data and regression analysis to measure beta of CAPM model before and after COVID-19 of 5 companies in the airplane industry. The data of return of each company, risk free rate and market rate are calculated from the stock price. From the measurement, the companies had volatile stock returns, and most declined. It is also deduced that, except for Spirit Airlines, all four companies had beta values greater than one in the two years prior to the epidemic, indicating that, prior to the epidemic, the risk associated with airline stocks was greater than the risk associated with the market.