scholarly journals Validity of Capital Assets Pricing Model (CAPM) (Empirical Evidences from Amman Stock Exchange)

2021 ◽  
Vol 8 (1) ◽  
pp. 207
Author(s):  
Ahmad Alqisie ◽  
Talal Alqurran
Keyword(s):  
Risk Premium ◽  
Stock Exchange ◽  
Conclusive Evidence ◽  
Average Risk ◽  
Pricing Model ◽  
Expected Return ◽  
Risk And Return ◽  
Amman Stock Exchange ◽  
Beta Coefficient ◽  
The Relationship

The purpose of this study is to test the validity of CAPM in Amman Stock Exchange (ASE) during the period (2010 – 2014), which was divided into three sub periods. We used monthly returns of 60 stocks of Jordanian companies listed in ASE. Black, Jensen and Scholes (1972) and Fama and MacBeth (1973) methods were used to test the CAPM in different study sub-periods. The analysis results showed that higher risk (beta) is not associated with higher levels of return, which violated the CAPM assumption. Results of the study leads to contradict the theory’s assumption that beta coefficient is a good toll to predict the relationship between risk and return; hence the beta coefficient of some portfolios in the three sub periods was not significant. In addition, the results of testing SML violated the CAPM assumption in the three sub periods that, the slope should be equal to the average risk premium. Finally, tests of nonlinearity of the relationship between return and betas validated the CAPM hypothesis, that the expected return-beta relationship is linear. Depending on the above results, we couldn’t find conclusive evidence in support of CAPM in ASE.

scholarly journals The Relationship Between Corporate Governance Practices and Financial Performance: Evidence from Amman Stock Exchange

2021 ◽  
pp. 63-87
Author(s):  
Hussein Ahmad Bataineh ◽  
Sulaiman Salim Al Harthy ◽  
Raqiya Ali Al Balushi
Keyword(s):  
Corporate Governance ◽  
Financial Performance ◽  
Stock Exchange ◽  
Predictor Variable ◽  
P Value ◽  
Amman Stock Exchange ◽  
Governance Practices ◽  
Unit Increase ◽  
Beta Coefficient ◽  
The Relationship

The objective of the study was to establish the relationship between corporate governance Index and financial performance and evidence from Amman stock exchange. To achieve this objective, this study applied descriptive research structure. In this case, the research focused on the 181 firms listed at the Amman Stock Exchange (Appendix I). The statistical techniques that was applied to analyze collected data included descriptive statistics. The information analyzed revealed that the model summary indicated that the R² to be 0.243. This meant that 24.3% of the variation in performance (ROA) was due to the predictor variable captured in the study. This also implied that 75.7% of the variation in ROA was attributed to the measurements of error and other factors that could have had an effect on the ROA but were not captured in the study. The estimated model showed that ROA when other factors are held constant was 1.610. The outcomes also revealed that governance score had a beta coefficient of 0.573 indicating that for every unit increase in governance score on the ROA went up by 0.573. This relationship is significance since P-value of 0.025<0.05. Therefore, the model qualified as a good predictor. Keywords: Corporate Governance, Financial Performance, Amman stock Exchange.

scholarly journals Analysis of the Relationship of Risk and Return Using the Capital Asset Pricing Model (CAPM) Method at Kompas 100 for the 2015-2019 Period

2020 ◽  
Vol 2 (2) ◽  
pp. 383-393
Author(s):  
Andini Nurwulandari
Keyword(s):  
Asset Pricing ◽  
Stock Price ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Expected Return ◽  
Risk And Return ◽  
Asset Pricing Model ◽  
The Relationship

This research aimed to investigate the relationship between risk and return on Kompas 100 shares using the Capital Asset Pricing Model (CAPM) approach from 2015 to 2019. The sample amounted to 52 companies registered in Kompas 100. This study used a quantitative approach. The data used includes the closing price of shares and the Composite Stock Price Index (IHSG) for 4 years (1 January 2015 - 31 December 2019) and the risk-free rate, which is calculated using the interest rate on Bank Indonesia Certificates ( SBI) issued by the Bank Indonesia. The results of testing the relationship with the simple correlation coefficient of CAPM calculation, Beta, and CAPM predicted return has a significant positive relationship. If beta increases, the expected return will increase, and vice versa. If Beta goes down, the expected return will go down. Of the 52 sample companies, 33 companies deserve to be used as investment destinations and purchase their shares.

Challenges in Estimation of Beta

2020 ◽  
pp. 79-98
Author(s):  
Tarana Azimova
Keyword(s):  
Asset Pricing ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Expected Return ◽  
Asset Pricing Model ◽  
Market Portfolio ◽  
Time Period ◽  
Beta Coefficient ◽  
Substantial Bias ◽  
The Relationship

Capital asset pricing model (CAPM) brings deep intuitive understanding of the relationship between expected return and risk. Unfortunately, the empirical record of the CAPM has not been satisfactory since its commencement. The empirical testing of CAPM is void in most cases due to the use of an inefficient index as a proxy for market portfolio. Plausible tests require a well-diversified market portfolio which so far has been unfeasible to obtain. Lack of validity in empirical records has been caused by complexity in exerting valid estimations of the beta coefficient. This chapter judges which of the indices provides investors the best beta forecast and questions which time period should be selected for beta calculation. This chapter reveals that the choice of return intervals causes variations in beta estimation of the security. Applying higher frequency has an advantage in that it increases the number of observations, but a shortfall is that beta tends to have substantial bias with shorter return intervals used.

scholarly journals An Analysis of the Relationship between Risk and Expected Return in Malaysia Stock Market: Test of the CAPM

2018 ◽  
Vol 7 (3.21) ◽  
pp. 161
Author(s):  
Koh Xin Rui ◽  
Devinaga Rasiah ◽  
Yuen Yee Yen ◽  
Suganthi Ramasamy ◽  
Shalini Devi Pillay
Keyword(s):  
Asset Pricing ◽  
Stock Market ◽  
Strong Evidence ◽  
Stock Return ◽  
Stock Exchange ◽  
Pricing Model ◽  
Expected Return ◽  
Risk And Return ◽  
Asset Pricing Model ◽  
Capm Model

Investment theory describes the concept of relationship between risk and return. Capital Model Asset Pricing Model (CAPM) was based on the risk and return relationship. CAPM described that asset’s expected return that is above the risk free rate is directly related to the non-diversifiable risk that is measure by beta. Focus of this study is to identify the impacts of risk toward the stock return in Malaysia stock market during the year 2007 to 2015 by testing on the applicability of Capital Asset Pricing Model. The data is from monthly stock returns from 24 companies listed on the stock exchange for investigation. The analysis of monthly stock market closing indexes from using regression model was carried out on the standard CAPM model. When testing the CAPM model for the whole period, it has not showed strong evidence that support the validity of this model and in order to get better estimates, this study divided the whole sample into 3 sub periods of five years each. The study found high beta value does not related to higher level in stock return. The positive relationship between systematic risk and return does not have a strong evidence to support it. The research also identify that the securities market line has direct relationship between risk and return. The unsystematic risk does not have an effect on the return. It means that stock prices cannot be effectively predicted by CAPM and Malaysia Stock and the validity of CAPM does not exist in Malaysia Stock Exchange Market for the period 2007-2015 due to some limitations such as time frame, sample size and others. This paper suggest a different assets pricing model and takes into consideration of some related variables in predicting future stocks returns. This research provides important implication to investors, analysts, stock brokers, speculators, fund managers, practitioners, relevant authorities, and government.  

scholarly journals The ability of cash flows to predict the earning: Evidence from Jordan

2021 ◽  
Vol 18 (4) ◽  
pp. 36-44
Author(s):  
Mohammad Fawzi Shubita
Keyword(s):  
Stock Exchange ◽  
Predictive Ability ◽  
Cash Flows ◽  
Operating Cycle ◽  
Prediction Ability ◽  
Future Earnings ◽  
Industrial Companies ◽  
Amman Stock Exchange ◽  
Great Support ◽  
The Relationship

This study aims to investigate the ability of cash flows components to predict the earning and to know the extent of the relationship between accounting profits and cash flow measures. The study sample consisted of 77 industrial companies listed on the Amman Stock Exchange in Jordan for the period from 2006 to 2019. This study relied on the regression method to test the relationship between the study variables. The study findings showed that the cash flows from operating, investing, and financial activities have a statistically significant impact on predicting future earnings. The study also examined the effect of length of operating cycle and company’s size on the predictive ability of cash flows regarding future earnings. The main results for this aspect are that large companies and short operating cycle companies have higher prediction ability for future earnings than small and long operating cycle companies. This paper provides evidence of the information content of cash flows for future earnings in emerging markets like Jordan and is important for Jordanian shareholders by enabling them to evaluate company’s performance. AcknowledgmentsI would like to thank Amman Arab University for its great support, and for funding this study.

scholarly journals Investment decision by using Capital Asset Method Pricing Model (CAPM) (Case studies on five automotive companies listed in stock exchange)

2021 ◽  
Vol 1 (2) ◽  
pp. 165-175
Author(s):  
Ahmad Musodik ◽  
Arrum Sari ◽  
Ida Nur Fitriani
Keyword(s):  
Asset Pricing ◽  
Automotive Industry ◽  
Stock Exchange ◽  
Investment Decision ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Expected Return ◽  
Asset Pricing Model

Investment is a tool for investors to get more profit than what has been invested. Investors must be able to predict the possibilities that occur when investing. Capital Asset Pricing Model is a tool to predict the development of investment in a particular company used to calculate and determine the Expected Return in minimizing risk investments. The authors conducted research using a sample of 5 companies in the automotive industry, namely PT Astra International Tbk, PT Indokordsa Tbk, PT Indomobil Sukses Internasional Tbk, PT Astra Otoparts Tbk, and PT Gajah Tunggal Tbk. This study uses a descriptive quantitative approach with Microsoft Excel 2016 analysis tools. This study aims to determine Portfolio Analysis with the Capital Asset Pricing Model (CAPM) approach which is used as the basis for making stock investment decisions in automotive industry sector companies listed on the Indonesia Stock Exchange. Use from the results of the analysis of the results by comparing the value of E(Ri) has a directly proportional relationship, meaning that the higher the value of, then the stock return (E(Ri)) will be high as well. Of the 5 companies, there are 2 companies that are in the Undervalued category and 3 companies that are in the overvalued category. This means that investors who will invest in companies engaged in the automotive industry can decide to buy shares of the companies PT Indomobil Sukses Internasional Tbk and PT Gajah Tunggal Tbk, because they are classified as undervalued. Meanwhile, investors who want to invest in shares are not advised to buy company shares that are in the overvalued category, but are advised to sell them to investors who already have shares in the company.

The expected return on United Kingdom equities and an implication for pension fund valuations

1993 ◽  
Vol 120 (2) ◽  
pp. 253-309
Author(s):  
P. D. Jones
Keyword(s):  
United Kingdom ◽  
Risk Premium ◽  
Pension Fund ◽  
Economic Recession ◽  
Excess Return ◽  
Yield Ratio ◽  
Equity Risk Premium ◽  
Expected Return ◽  
Equity Risk ◽  
The Relationship

AbstractThe paper analyses the relationship between equities and gilt-edged. It shows that the yield ratio (the yield on gilts divided by that on equities) should no longer hold its almost mystical significance of the last decade, being but one component of the expected return on equities, in which the most significant element is the rate of dividend growth relative to the yield on gilt-edged. How equities perform in economic recession is highlighted. The paper reviews the performance of equities over the last 70 years in both nominal and real terms and analyses the historic sources of the equity risk premium, i.e. the excess return of equities over gilt-edged. If the equity risk premium remains at below-average levels in the 1990s, as is possible, constraints may be placed on actuaries' choice of pension fund valuation bases.

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