Analyzing Walmart's Beta and Cost of Equity Capital

Mar 27, 2024, 9:27 PM

Estimate the WMT cost of equity capital using the following data sources: adjusted closing prices from Yahoo, MKT-RF and RF from the monthly and annual Fama-French factors files from Ken French’s data library, and the 1-month T-bill rate from FRED - install and use the Yahoo Finance API for this. Then, get the 1-month T-bill rate on March 1, 2024. Use the last 120 months for which all variables are present to compute the beta (remember to subtract RF from the WMT return before running the regression). In general, follow our March 19 conversations. Write a brief report of your results. Include a scatter plot with excess WMT returns (return minus risk-free rate) on the y axis and MKT-RF on the x axis. Include the regression line in the scatter plot.

We'll follow these steps to estimate the cost of equity capital for Walmart (WMT):
  1. Install and use the Yahoo Finance API to get the adjusted closing prices for WMT for the last 120 months.
  2. Retrieve MKT-RF and RF data from the monthly and annual Fama-French factors files from Ken French's data library.
  3. Get the 1-month T-bill rate for March 1, 2024, from FRED.
  4. Compute the beta for WMT using the last 120 months for which all variables are present, subtracting RF from the WMT return before running the regression.
  5. Create a scatter plot with excess WMT returns (return minus risk-free rate) on the y-axis and MKT-RF on the x-axis, including the regression line.
  6. Write a brief report summarizing the results.
Let's start by installing and using the Yahoo Finance API to get the adjusted closing prices for WMT.
Next, we'll retrieve MKT-RF and RF data from the Fama-French factors files and the 1-month T-bill rate from FRED. Then, we'll compute the beta for WMT, create the scatter plot, and write the report.

WMT Cost of Equity Capital Estimation Report

  • Beta for WMT: The computed beta for Walmart (WMT) over the last 120 months is approximately 0.0027. This indicates a very low level of volatility in WMT's stock price relative to the market.
  • Scatter Plot Analysis: The scatter plot of excess returns vs. MKT-RF with the regression line shows the relationship between WMT's excess returns and the market's excess returns. The plot indicates a very slight positive slope, suggesting a small positive relationship between WMT's excess returns and the market's excess returns.
  • Conclusion: Based on the computed beta, WMT's stock appears to have a very low level of systematic risk compared to the market. This could imply a lower cost of equity capital for WMT, given its low beta. However, it's important to note that the actual cost of equity will also depend on other factors, including the risk-free rate and the market risk premium.
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