Single Index Model

The Single Index Model (SIM) is an asset pricing model, according to which the returns on a security can be represented as a linear relationship with any economic variable relevant to the security.

In case of stocks, this single factor is the market return.

The SIM for stock returns can be represented as follows:

rsrf=α+β(rmrf)+εr_{s}-r_{f}=\alpha +\beta \left ( r_{m} - r_{f}\right )+\varepsilon

Where:

  • Alpha (α) represents the abnormal returns for the stock
  • β(rm − rf) represents the movement of the market modified by the stock's beta
  • ε represents the unsystematic risk of the security due to firm-specific factors.

According to this equation, asset’s returns is influenced by the market (reflected in beta), it has firm specific excess returns (reflected in alpha) and also has firm-specific risk (the residual).

Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book includes PDFs, explanations, instructions, data files, and R code for all examples.

Get the Bundle for $29 (Regular $57)
JOIN 30,000 DATA PROFESSIONALS

Free Guides - Getting Started with R and Python

Enter your name and email address below and we will email you the guides for R programming and Python.

Data Science in Finance: 9-Book Bundle

Data Science in Finance Book Bundle

Master R and Python for financial data science with our comprehensive bundle of 9 ebooks.

What's Included:

  • Getting Started with R
  • R Programming for Data Science
  • Data Visualization with R
  • Financial Time Series Analysis with R
  • Quantitative Trading Strategies with R
  • Derivatives with R
  • Credit Risk Modelling With R
  • Python for Data Science
  • Machine Learning in Finance using Python

Each book comes with PDFs, detailed explanations, step-by-step instructions, data files, and complete downloadable R code for all examples.