scholarly journals Learning about Risk and Return: A Simple Model of Bubbles and Crashes

2011 ◽  
Vol 3 (3) ◽  
pp. 159-191 ◽  
Author(s):  
William A Branch ◽  
George W Evans
Keyword(s):  
Stock Prices ◽  
Conditional Variance ◽  
Risk Averse ◽  
Pricing Model ◽  
Expected Return ◽  
Asset Pricing Model ◽  
Excess Volatility ◽  
Past Data ◽  
Recursive Updating ◽  
Changes Over Time

This paper demonstrates that an asset pricing model with least-squares learning can lead to bubbles and crashes as endogenous responses to the fundamentals driving asset prices. When agents are risk-averse they need to make forecasts of the conditional variance of a stock's return. Recursive updating of both the conditional variance and the expected return implies several mechanisms through which learning impacts stock prices. Extended periods of excess volatility, bubbles, and crashes arise with a frequency that depends on the extent to which past data is discounted. A central role is played by changes over time in agents' estimates of risk. (JEL D81, D83, E32, G01, G12)

scholarly journals ANALYSIS Of CAPITAL ASSET PRICING MODEL ACCORDING TO SHARIAH PRINCIPLE: INDONESIAN EVIDENCE

2019 ◽  
Vol 3 (03) ◽  
Author(s):  
Yuni Pristiwati Noer Widianingsih
Keyword(s):  
Asset Pricing ◽  
Stock Prices ◽  
Capital Asset Pricing Model ◽  
Stock Index ◽  
Capital Asset Pricing ◽  
Financial Instruments ◽  
Pricing Model ◽  
Capital Asset ◽  
Expected Return ◽  
Asset Pricing Model

Capital Asset Pricing Model (CAPM) is one of the estimated return models developed in conventional financial instruments that have different characteristics from Islamic financial instruments. So the CAPM model cannot be directly applied in Islamic financial instruments, so an estimation model is needed, namely the Shariah Compliant Capital Asset Pricing Model (SCAPM). This study aims to produce a SCAPM model that can be applied to estimate returns in Islamic financial instruments. The data used in the test is a list of sharia companies listed on the IDX, sharia company stock prices, Indonesia Sharia Stock Index (ISSI), yield of sukuk and return of Bank Indonesia Certificates (SBI) for the period 2010 - 2018. Testing is done by comparing expected return with the CAPM and SCAPM models. The SCAPM model used is to eliminate the risk free asset factor and replace it with inflation, zakat, and yield of sukuk. The results of the analysis using graphs and the compare mean test show that the results of the expected return with the SCAPM and CAPM models have no difference, so the SCAPM model can be used as an alternative model of return estimation in Islamic Financial Instruments on the IDX.

scholarly journals On the Validity of the Capital Asset Pricing Model (CAPM)

2020 ◽  
Vol 12 (4) ◽  
pp. 1
Author(s):  
M. J. Alhabeeb
Keyword(s):  
Asset Pricing ◽  
Market Risk ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Technical Tool ◽  
Expected Return ◽  
Asset Pricing Model

This study exposes the meaning and role of the Capital Asset Pricing Model (CAPM) and lays out the key elements that make it work. It shows the model’s theoretical strength and examines its applicability and validity as a technical tool to measure the expected return to the investment in stock, along with assessing the market risk associated with that investment.

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.

ENDOGENOUS PARTICIPATION, RISK, AND LEARNING IN THE STOCK MARKET

2020 ◽  
pp. 1-33 ◽  
Author(s):  
Michael Shin
Keyword(s):  
Stock Market ◽  
Stock Prices ◽  
Stock Price ◽  
Price Volatility ◽  
Participation Rate ◽  
Participation Rates ◽  
Asset Pricing Model ◽  
Excess Volatility ◽  
Subjective Risk ◽  
Cross Country

A simple asset pricing model with both endogenous stock market participation and subjective risk can explain the negative cross-country correlation between participation rates and the volatility of excess returns, along with the time-varying participation rates in the data. Belief-driven learning dynamics can explain the interplay between participation rates, subjective risk, and stock price volatility. When agents adaptively learn about the risk and return, my model generates 25% of the excess volatility observed in US stock prices, while also matching key moments. With learning about risk, excess volatility of stock prices is driven by fluctuations in the participation rate that arise because agents’ risk estimates vary with prices. I find that learning about risk is quantitatively more important than learning about returns.

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 Modeling Volatility and Daily Exchange Rate Movement in Nigeria

2019 ◽  
pp. 264-275
Author(s):  
Ejem Chukwu Agwu ◽  
Ogbonna Udochukwu Godfrey
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rate Volatility ◽  
Conditional Variance ◽  
Bad News ◽  
Risk Averse ◽  
Exchange Rate Movement ◽  
Excess Volatility ◽  
Us Dollar ◽  
Modeling Volatility

This study modeled volatility and daily exchange rate movement in Nigeria with daily exchange rate between Nigeria Naira and US Dollar from January 2, 2001 to May 20, 2019 collected from the Central Bank of Nigeria (CBN). The results of the estimated models revealed that conditional variance (volatility) has positive and significant relationship with exchange rate returns between Nigeria Naira and US Dollars, which corroborates the theory that predicts positive relationship between return and volatility for risk averse investors. Also found that exchange rate volatility between Naira / US Dollar is persistent. It was also discovered that goods news produces more volatility than bad news of equal magnitude. The researchers therefore suggested that the Central Bank of Nigeria should always proffer timely intervention to reduce the volatility persistence. This will go a long way to counteract or moderate the excess volatility between Naira and US Dollar transactions.

An Empirical Test of Capital Asset-pricing Model and Three-factor Model of Fama in Indian Stock Exchange

2018 ◽  
Vol 43 (4) ◽  
pp. 294-307
Author(s):  
Nenavath Sreenu
Keyword(s):  
Asset Pricing ◽  
Factor Model ◽  
Stock Exchange ◽  
Capital Asset Pricing Model ◽  
Capital Asset Pricing ◽  
Pricing Model ◽  
Capital Asset ◽  
Expected Return ◽  
Asset Pricing Model ◽  
Three Factor

This article aims to test the capital asset-pricing model (CAPM) and three-factor model of Fama in Indian Stock Exchange, and it has focused on the recent growth of capital markets in India and the need of practitioners in these markets to determine a stable price for securities, and achieving expected returns has brought into consideration the theories predicting price securities Among different models the CAPM of Sharp. The study uses a sample of daily data and annual average for 54 companies listed on the National Stock Exchange, during the period from 2010 to 2016. The research article’s intention is to find whether the relationship between expected return and risk is linear, if beta is a complete measure of the risk and if a higher risk is compensated by a higher expected return. The results confirm that the intercept is statistically insignificant, upholding theory, for both individual assets and portfolios. The tests do not essentially provide validation against CAPM and Fama; however, other simulations can be built, more close to reality, by improving the model and offering an alternative which also takes into account the specific conditions of the Indian capital market and the global financial crisis consequences.

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