scholarly journals A Robust Application of the Arbitrage Pricing Theory: Evidence from Nigeria

2017 ◽  
Vol 9 (1) ◽  
pp. 141
Author(s):  
Oyetayo Oluwatosin J. ◽  
Adeyeye Patrick Olufemi
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Ordinary Least Squares ◽  
Arbitrage Pricing Theory ◽  
Arbitrage Pricing ◽  
Expected Return ◽  
Long Run ◽  
Short Run ◽  
Pricing Theory ◽  
Relationship Of

Arbitrage pricing theory (APT) is a testable theory based on the idea that in competitive financial markets arbitrage will ensure that riskless assets provide the same expected return. We sought to confirm the relevance of the arbitrage pricing theory in Nigeria. Guided by a good understanding of macroeconomic variables and stock price movements as found in the extant literature on arbitrage pricing theory (APT), we specified our APT equation for estimation. Having satisfied the integration and co-integration issues, we employ the error-correction (ECM) and the fully modified ordinary least squares (FMOLS) methods for the short-run and long-run regressions. Our short-run results seem to agree with existing theories on APT thus confirming that APT is relevant in Nigeria. However, the long-run relationship of stock returns and RGDP was found to be contentious. Even though our result runs contrary to predictions on the relationship between the two, we found peculiar events and circumstances within the Nigerian macroeconomic context that provides logical reasons for the deviation.

scholarly journals A Robust Application of the Arbitrage Pricing Theory: Evidence from Nigeria

2017 ◽  
Vol 9 (1(J)) ◽  
pp. 141-151
Author(s):  
Oyetayo Oluwatosin J. ◽  
Adeyeye Patrick Olufemi
Keyword(s):  
Stock Returns ◽  
Stock Price ◽  
Ordinary Least Squares ◽  
Arbitrage Pricing Theory ◽  
Arbitrage Pricing ◽  
Expected Return ◽  
Long Run ◽  
Short Run ◽  
Pricing Theory ◽  
Relationship Of

Arbitrage pricing theory (APT) is a testable theory based on the idea that in competitive financial markets arbitrage will ensure that riskless assets provide the same expected return. We sought to confirm the relevance of the arbitrage pricing theory in Nigeria. Guided by a good understanding of macroeconomic variables and stock price movements as found in the extant literature on arbitrage pricing theory (APT), we specified our APT equation for estimation. Having satisfied the integration and co-integration issues, we employ the error-correction (ECM) and the fully modified ordinary least squares (FMOLS) methods for the short-run and long-run regressions. Our short-run results seem to agree with existing theories on APT thus confirming that APT is relevant in Nigeria. However, the long-run relationship of stock returns and RGDP was found to be contentious. Even though our result runs contrary to predictions on the relationship between the two, we found peculiar events and circumstances within the Nigerian macroeconomic context that provides logical reasons for the deviation.

scholarly journals PENGUJIAN ARBITRAGE PRICING THEORY (APT) SEBAGAI PREDICTOR PENGEMBALIAN SAHAM YANG DIHARAPKAN ( STUDI KASUS PADA INDUSTRI PERBANKAN YANG TERDAFTAR DI BURSA EFEK INDONESIA)

2013 ◽  
Vol 8 (3) ◽  
Author(s):  
Fanda Daisy Prully Rundengan ◽  
Tommy Parengkuan ◽  
Ivonne Saerang
Keyword(s):  
Stock Returns ◽  
Banking Industry ◽  
Stock Exchange ◽  
Arbitrage Pricing Theory ◽  
Arbitrage Pricing ◽  
Expected Return ◽  
Pricing Theory ◽  
Actual Return ◽  
The Impact ◽  
Dependent Samples

The impact of the economic crisis caused investors have difficulty in analyzing and predicting stock returns of the company. No exception to the banking industry shares are listed on the Indonesia Stock Exchange (BEI). In predicting stock returns are expected, there are two models that are often used by investors, the capital asset pricing model (CAPM) and the arbitrage pricing theory (APT). APT basically use reasoning stating that two investment opportunities that have the same characteristics identical bias not sold with different prices. The concept used is hokum one price (the law of one price). Analysis used in the study is the analysis of two different test average. Where comparing ten banking industry Stock Exchange Securities registered Indonesian (IDX). After conducting a hypothesis test using the SPSS output in the form of test results obtained bedadua average dependent samples, bahwathitung for APT testing by comparing the actual return (Ri) and expected return (ERI) stock with a variance equal to propabilitas assumet is 0.290 0,1.620. Therefore, P-value 0.290> 0.05, results showed that the expected return is not berbedas ignifikan with actual return (significant 0.290) This means that the hypothesis stated:. "Allegedly expected return results Arbitrage Pricing Theory model predictions with actual return on the banking industry that went public in the Indonesia Stock Exchange rejected. Therefore, the expected return does not differ significantly from the actual return the Arbitrage Pricing Theory Accurate models. Results of research conducted by the author, states that testing APT (Arbitrage Pricing Theory) by comparing Actual return (Ri) with Expected return (ERI) to measure stock returns is no difference. This means that the APT does not affect stock returns padaindustri banks that went public on the stock exchanges of Indonesia.

An extensile method on the arbitrage pricing theory based on downside risk (D-APT)

2014 ◽  
Vol 10 (1) ◽  
pp. 54-72 ◽  
Author(s):  
Mohammad Reza Tavakoli Baghdadabad ◽  
Paskalis Glabadanidis
Keyword(s):  
Stock Returns ◽  
Factor Model ◽  
Arbitrage Pricing Theory ◽  
Arbitrage Pricing ◽  
Content Type ◽  
Corporate Managers ◽  
Fund Managers ◽  
Financial Variables ◽  
Expected Stock Returns ◽  
Pricing Theory

Purpose – The purpose of this paper is to propose a new and improved version of arbitrage pricing theory (APT), namely, downside APT (D-APT) using the concepts of factors’ downside beta and semi-variance. Design/methodology/approach – This study includes 163 stocks traded on the Malaysian stock market and uses eight macroeconomic variables as the dependent and independent variables to investigate the relationship between the adjusted returns and the downside factors’ betas over the whole period 1990-2010, and sub-periods 1990-1998 and 1999-2010. It proposes a new version of the APT, namely, the D-APT to replace two deficient measures of factor's beta and variance with more efficient measures of factors’ downside betas and semi-variance to improve and dispel the APT deficiency. Findings – The paper finds that the pricing restrictions of the D-APT, in the context of an unrestricted linear factor model, cannot be rejected over the sample period. This means that all of the identified factors are able to price stock returns in the D-APT model. The robustness control model supports the results reported for the D-APT as well. In addition, all of the empirical tests provide support the D-APT as a new asset pricing model, especially during a crisis. Research limitations/implications – It may be worthwhile explaining the autocorrelation limitation between variables when applying the D-APT. Practical implications – The framework can be useful to investors, portfolio managers, and economists in predicting expected stock returns driven by macroeconomic and financial variables. Moreover, the results are important to corporate managers who undertake the cost of capital computations, fund managers who make investment decisions and, investors who assess the performance of managed funds. Originality/value – This paper is the first study to apply the concepts of semi-variance and downside beta in the conventional APT model to propose a new model, namely, the D-APT.

Providing an Empirical Insight into Nigeria’s Non-acceleration Rate of Unemployment

2018 ◽  
Vol 3 (2) ◽  
pp. 179-190
Author(s):  
Richardson Kojo Edeme
Keyword(s):  
Phillips Curve ◽  
Least Squares Method ◽  
Full Employment ◽  
Negative Relationship ◽  
Policy Decision ◽  
Ordinary Least Squares ◽  
Acceleration Rate ◽  
Long Run ◽  
Short Run ◽  
Relationship Of

This study was necessary since inflation and unemployment are twin macroeconomic variables that exert influence on the policy decision of any economy. Using time series from 1972 to 2015, the ordinary least-squares method was employed to determine both the short-run and long-run Phillips curve to ascertain if it is evident in Nigeria. The non-accelerating inflation rate of unemployment (NAIRU) was also estimated. The results establish the presence of a negative relationship of both inflation and unemployment in the short-run and long-run unemployment, though not significant. Since NAIRU is 11.63, the policy implication is that if the economy was to achieve full employment, an unemployment rate of 11.63 per cent is inevitable.

scholarly journals Analisis Keakuratan Capital Asset Pricing Model (CAPM) dan Arbitrage Pricing Theory (APT) dalam Memprediksi Expected Saham pada LQ45

d'CARTESIAN ◽  
2017 ◽  
Vol 6 (1) ◽  
pp. 30
Author(s):  
Muhammad Irfan Ibrahim ◽  
Jullia Titaley ◽  
Tohap Manurung
Keyword(s):  
Asset Pricing ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Arbitrage Pricing Theory ◽  
Pricing Model ◽  
Capital Asset ◽  
Arbitrage Pricing ◽  
Expected Return ◽  
Asset Pricing Model ◽  
Pricing Theory

Para investor dalam pembelian saham pada dasarnya memiliki tujuan yang sama yaitu mengharapkan pengembalian (return) yang maksimal dan risiko seminimal mungkin. Untuk mengambil keputusan dalam investasi tersebut dengan memperhatikan harapan investor maka diperlukan prediksi yang akurat. Untuk memilih saham dari Pasar Modal, investor menilai dari expected return yang dihitung dari saham tersebut. Para investor dalam memilih portofolio saham sering dihadapkan dengan berbagai faktor yang relevan dalam mengestimasi expected return. Model yang sering digunakan dalam mengestimasi expected return saham berdasarkan faktor-faktor yang dianggap memengaruhi return saham adalah Capital Asset Pricing Model (CAPM) dan Arbitrage Pricing Theory (APT). CAPM merupakan model untuk menentukan expected return saham pada keadaan equilibrium. APT mengasumsikan bahwa expected return saham dipengaruhi oleh berbagai faktor dalam perekonomian dan industri. Tujuan penelitian ini untuk mengetahui perbandingan tingkat keakuratan CAPM dan APT dalam mengestimasi expected return pada saham-saham yang terdaftar pada LQ45. Penelitian ini menggunakan data close price bulanan saham dengan periode Juni 2011-Juni 2016. Dari hasil penelitian ini, menunjukkan bahwa perbandingan keakuratan dari CAPM dan APT yang dilihat dari nilai Mean Absolute Deviation (MAD) yang memiliki selisih yang sangat kecil. Berdasarkan hasil uji-t Dua Sampel Independen dapat diambil kesimpulan yang menyatakan bahwa tidak terdapat perbedaan yang signifikan antara keakuratan CAPM dan APT dalam mengestimasi expected return saham yang terdaftar pada LQ45.Kata Kunci : CAPM, APT, Expected Return.

scholarly journals Autoregression Vector Prediction on Banking Stock Return using CAPM Model Approach and Multi-Factor APT (IJCIET)

2018 ◽  
Author(s):  
Andysah Putera Utama Siahaan ◽  
Rusiadi
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Arbitrage Pricing Theory ◽  
Capital Asset ◽  
Arbitrage Pricing ◽  
Asset Pricing Model ◽  
Model Method ◽  
Pricing Theory

This study aims to predict banking stock returns in Indonesia. The problem under study is the difficulty of determining banking stock returns. This study uses the VAR approach by comparing CAPM and APT. The results show the CAPM (Capital Asset Pricing Model) method through RF (Return Risk-Free Assets) is more accurate in predicting stock returns than the APT (Arbitrage Pricing Theory) method. In the medium term, the CAPM (Capital Asset Pricing Model) method through RF (Return Risk-Free Assets) is more accurate in predicting stock returns than the APT (Arbitrage Pricing Theory) method. In the long run, the CAPM (Capital Asset Pricing Model) method is also more accurate in predicting stock returns than the APT (Arbitrage Pricing Theory) method. Model specifications formed using the Roots of Characteristic Polynomial and Inverse Roots of AR Characteristic Polynomial obtained stable results; it can be shown that all roots units are in the Inverse Roots of AR Characteristic Polynomial circle.

scholarly journals Desain Portofolio Optimal untuk Keputusan Investasi pada Fase Krisis Keuangan

2017 ◽  
Vol 16 (1) ◽  
pp. 68
Author(s):  
Deddy Saptomo ◽  
Insannul Kamil ◽  
Elita Amrina ◽  
Mego Plamonia
Keyword(s):  
Stock Price ◽  
Global Financial Crisis ◽  
Stock Exchange ◽  
Optimal Portfolio ◽  
Arbitrage Pricing Theory ◽  
Expected Return ◽  
Macroeconomic Factors ◽  
The Us ◽  
Pricing Theory ◽  
The Global Financial Crisis

This research aims to design optimal portfolio with a case study of stocks listed on the Indonesia Stock Exchange (IDX) that conduct transactions in the period 2011-2015. The sample used were 396 companies listed on nine sectors in BEI. Arbitrage Pricing Theory (APT) method is used to determine the realized return, expected return, and efficient portfolio involving four macroeconomic factors (Stock Price Index (IHSG), interest rate of Indonesian Bank Certificates (SBI), Inflation and Exchange Rate of Rupiah against the US Dollar). Efficient portfolio is formed by 231 undervalued companies. While the optimal portfolio with the Excess Return to Beta (ERB) approach was formed by 42 companies with a ERB value greater than (or equal to) cut-off point (0,1912). Under the uncertainty of the investment climate due to the global financial crisis, the decision to make investments needs to be done carefully and consider various factors, including macroeconomic factors. This research has succeeded in designing an optimal portfolio that can be a guide for investors to determine investment decisions.

Asset Pricing Through Downside Risk Based Arbitrage Pricing Theory: Empirical Evidence from Pakistan Stock Exchange

2020 ◽  
Keyword(s):  
Asset Pricing ◽  
Stock Returns ◽  
Stock Exchange ◽  
Downside Risk ◽  
Arbitrage Pricing Theory ◽  
Pricing Model ◽  
Arbitrage Pricing ◽  
Asset Pricing Model ◽  
Risk Return ◽  
Pricing Theory

This study extends the downside risk applications in multifactor asset pricing model by incorporating the downside risk spillovers from economic and financial factors to stock returns. We amplify the conventional APT model by replacing the variance-based betas with semivariance based downside betas that better capture the risk volatilities in varying market conditions. The inclusion of downside risk betas based on semivariance and semideviation methods in the augmented asset pricing model improves both the theoretical and methodological applications relative to the limitations and restriction of conventional APT factors model. The mean-variance hypothesis replaced by meansemivariance hypothesis and asymmetric behaviour of stock returns distribution, empirically suggest the use of an alternative factors model. The models based on downside risk premia for asset pricing in emerging markets. The study tested the downside risk-return relationship based on the excess monthly stock returns of listed PSX firms and observed economic, financial and global factors representing spillover triangulation from 1997 to 2017. The findings of the study indicate that the augmented DR-APT model with pricing restrictions of unconditional linear factors method could not be deserted over the targeted period of study. The selected observed pricing factors except exports are significant enough for pricing the security returns in the augmented DR-APT Model. Findings of the panel regression, likelihood ratio tests and F-test corroborate DR-APT as a better model to price stock returns in volatile situations compare to conventional APT model. Our findings are consistent with the downside risk-return framework based on mean semi variance hypothesis and have implications for managers and decision markets that incorporate downside risk in asset valuation, cost of capital estimations, portfolio construction and investment analysis decisions. Key Words: Downside Risk, Semi variance, Semi covariance, Downside Beta, Downside risk-based Arbitrage Pricing Theory (DR-APT).

scholarly journals IS ARBITRAGE PRICING THEORY IS A FAIRY TALE ?: THE EVIDENCE FROM INDONESIA WITH ORDINARY LEAST SQUARE ESTIMATION

2018 ◽  
Vol 2 (1) ◽  
pp. 18
Author(s):  
Faizal Reza, Adisthy Shabrina Nurqamarani, Danna Solihin
Keyword(s):  
Stock Prices ◽  
Stock Price ◽  
Fourth Quarter ◽  
Least Square ◽  
Price Formation ◽  
Regression Equations ◽  
Arbitrage Pricing Theory ◽  
Arbitrage Pricing ◽  
Independent Variables ◽  
Pricing Theory

Time series analysis in financial sector has grown in popularity since the last few decades, theories about capital markets are increasingly studied since Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) are often compared and paired with one another. The development of APT is widespread by involving many macroeconomic variables. Unfortunately there is no consensus until now. This paper aims to examine the relevance of APT in the case of Indonesia during the period 2009-2017 with standard multiple regression equations. From three independent variables, only exchange rates have a significant influence on the composite stock price (IHSG) in Indonesia, while inflation and GDP have no significant effect on stock prices. 99.8% variation in stock price formation can be explained by independent variables where there is a positive relationship between exchange rate and stock price indicates a mechanism of stock price formation through strong domestic demand before fourth quarter 2016 and trade effect (export-import) after fourth quarter 2016 .

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