BF422 — Bloomberg Exercise: CAPM, APT & EMH (Chapters 7 & 8)

Getting started: Log into a Bloomberg terminal on campus. Press HELP twice at any time for Bloomberg customer support. Use GO (green key) to execute commands.

Part 1: Finding Beta & Computing Expected Returns

1Look up beta for three stocks.

Type each ticker followed by Equity then BETA GO.

For example: AAPL Equity BETA

Use 2-year weekly returns against the S&P 500 (default settings).

Stock	Ticker	Beta (β)	R² (%)
Apple	AAPL
JPMorgan Chase	JPM
Johnson & Johnson	JNJ

2Find the current risk-free rate.

Type GT10 Govt GO to see the 10-year Treasury yield. Record the current yield.

r_f =

For the market risk premium, use the historical average: E(r_M) − r_f ≈ 8%

3Compute CAPM expected returns.

Use the formula: E(r_i) = r_f + β_i × 8%

Stock	Beta	E(r) Calculation	E(r) %
AAPL
JPM
JNJ

Part 2: Estimating Alpha

4Find actual 1-year returns.

For each stock, type AAPL Equity TRA GO (Total Return Analysis). Set the period to 1 year.

Stock	Actual 1Y Return	CAPM Expected	Alpha (α)	Over/Under/Fair?
AAPL
JPM
JNJ

5Interpret your findings.

Which stock had the highest alpha? Does positive alpha mean the stock is a guaranteed "buy"? What are the limitations of this analysis?

Part 3: Fama-French Factors & Anomalies

6Compare size and value characteristics.

For each stock, type AAPL Equity FA GO (Financial Analysis). Find:

Stock	Market Cap ($B)	Book Value/Share	Price/Book Ratio	Size: Large/Small?	Value or Growth?
AAPL
JPM
JNJ

Value vs. Growth: High Price/Book (P/B > 3) → Growth stock. Low P/B (< 2) → Value stock. Fama-French predicts value stocks earn higher returns over time.

7Check recent factor performance.

Type FAMA GO or search "Fama French" on Bloomberg. Alternatively, type EQS GO and create screens for small-cap value vs. large-cap growth stocks.

Based on recent data, are the size and value premiums still positive?

Part 4: Market Efficiency Test

8Event study: Earnings announcement reaction.

Pick any stock. Type AAPL Equity ERN GO to see recent earnings announcements.

Find the most recent earnings surprise (actual vs. estimate). Then type GP GO and zoom in to the announcement date.

Field	Your Finding
Stock ticker
Earnings date
EPS estimate vs. actual
Stock price change on announcement day
Price change over next 5 days

9Assess market efficiency.

Based on your event study:

Did the price adjust quickly (within the announcement day)?
Was there post-announcement drift (continued movement in the same direction)?
Which form of EMH does your evidence support or challenge?

Reminder: One data point does not prove or disprove EMH. Professional research uses hundreds of events and statistical tests. This exercise is designed to familiarize you with the data and the logic, not to reach definitive conclusions.

Bloomberg Terminal Exercise

Part 1: Finding Beta & Computing Expected Returns

Part 2: Estimating Alpha

Part 3: Fama-French Factors & Anomalies

Part 4: Market Efficiency Test

Bloomberg Quick Reference

Command	Function	Example
BETA	Beta analysis (regression)	AAPL Equity BETA
TRA	Total Return Analysis	AAPL Equity TRA
FA	Financial Analysis	AAPL Equity FA
GP	Graph/Price Chart	AAPL Equity GP
ERN	Earnings Analysis	AAPL Equity ERN
GT10 Govt	10-Year Treasury	GT10 Govt GO
EQS	Equity Screening	EQS GO