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Testing the CAPM Theory Using Time Series Regression Analysis

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Added on  2020-01-15

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Error 1 (Constant), market return Coefficientsa Model Unstandardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standardized Coefficients Standard

Testing the CAPM Theory Using Time Series Regression Analysis

   Added on 2020-01-15

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Testing the CAPM Theory Using Time Series Regression Analysis_1
TABLE OF CONTENTSIntroduction......................................................................................................................................3Task 1 and Task 2............................................................................................................................3Task 3.............................................................................................................................................16Task 4.............................................................................................................................................17Conclusion.....................................................................................................................................17References......................................................................................................................................182
Testing the CAPM Theory Using Time Series Regression Analysis_2
IntroductionThe purpose of the report is to test the CAPM theory. For that purpose, one market indexand financial data of 12 companies have been used. Time series regression analysis for each ofthe company has been performed. T-statistic for alpha and the R-squared for each company willbe reported. The results and the merits and demerits of CAPM analysis is also have beenperformed. Task 1 and Task 2 T-statistic – Within statistics, the T-statistic is a ratio of the departure of a projected parameterfrom its notional value and its standard error. It is mostly used in testing of the hypothesis(Deegan and Unerman, 2006). Alpha – Alpha is also known as the significance level in the statistical test. The alpha level is theprobability of rejecting the null hypothesis when the null hypothesis is true. Beta – Beta is a measure of the volatility or security or systematic risk or a portfolio incomparison to the market as a whole. It is mostly used in the capital asset pricing model (Jara,Ebrero and Zapata 2011). It calculates the expected return of an asset on the basis of beta and theexpected market returns.R-squared – It is a statistical measure of how close the data is with the regression line. It is alsoregarded as the coefficient of determination and the coefficient of multiple determination (Keller,2013). Banking sector Barclays Model SummaryModelRR SquareAdjusted RSquareStd. Error ofthe Estimate1.048a.002.0005.851.178,690a. Predictors: (Constant), barclays FTSEANOVAaModelSumofSquaresdfMean SquareFSig.3
Testing the CAPM Theory Using Time Series Regression Analysis_3
1Regression39287708031849.280139287708031849.2801.148.285bResidual17255091196565016.00050434236292056676.617Total17294378904596866.000505a. Dependent Variable: stock return b. Predictors: (Constant), market return CoefficientsaModelUnstandardizedCoefficientsStandardizedCoefficientstSig.BStd. ErrorBeta1(Constant)2557414.492295173.7648.664.000barclaysFTSE2669.5452492.024.0481.071.285a. Dependent Variable: stock returnInterpretation Method of regression analysis was applied on the given set of data. The dependentvariable is stock return and the independent variable is market return. Here the significance valueis .285 and it shows that there is low level of relationship between the two variables. Hence itindicates that stock returns are less dependent on market returns in case of Barclays bamk HSBC Model SummaryModelRR SquareAdjusted RSquareStd. Error ofthe Estimate1.342a.117.1155.518.788,926a. Predictors: (Constant), HSBCANOVAa4
Testing the CAPM Theory Using Time Series Regression Analysis_4

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