Tag Archives: Capital Asset Pricing Model

The Application of the Capital Asset Pricing Model (CAPM) In the Nigerian Chemicals and Paints Industrial Sector (Published)

This paper calculated the (historical) betas of listed stocks in the chemicals and paints sector of the Nigerian Stock Exchange over a 13-year period (2000-2012). The beta estimation of listed stocks showed that the beta content of the entire sector ranges between 1.04% and -0.13 or between 6.78 and -2.31% providing an average beta content of 0.37 or 1.50% of the total risk for the sector. The results indicate that the unsystematic risk content in chemicals/paints sector stocks constitutes the bulk of the sector’s risk profile and that most of the stocks’ betas had defensive attributes over the study period. The investment implication is that including an appropriate mix of chemical and paints stocks in the investors’ portfolios would, ceteris paribus, help investors to achieve a combination of investments that are not highly correlated with larger economic cycle as well as higher-risk equity securities that can potentially yield higher returns than the market.

Keywords: Alpha Risk, Beta Risk, Capital Asset Pricing Model, Equity, Market Risk, Nigerian Stock Exchange, Systematic Risk, Total Risk, Unsystematic Risk, Volatility Level, beta

Reconciling the Arbitrage Pricing Theory (APT) and the Capital Asset Pricing Model (CAPM) Institutional and Theoretical Framework (Published)

This paper examines the development of the capital assets pricing model (CAPM), which was developed by William Sharpe and John Lintner. It also looked at the various assumptions of CAPM and APT, and the contribution of Ross to the Arbitrage Pricing Theory (APT) in explaining the relationship between risk and return. The CAPM indicates that a linear relationship exists between a security required rate of return and its beta. The empirical verification of risk-return relationship indicates the mean-variance efficiency of the market proxy.

Keywords: Arbitrage Pricing Theory, Capital Asset Pricing Model, Reconciliation.