An empirical investigation of the capital asset pricing model: studying stocks on the Zimbabwe Stock Exchange

Jecheche, Petros (2011) An empirical investigation of the capital asset pricing model: studying stocks on the Zimbabwe Stock Exchange.

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Official URL: http://hdl.handle.net/10646/677

Abstract

Post-Print available on the following link: http://www.aabri.com/manuscripts/111089.pdf,Since the birth of the Capital Asset Pricing Model (CAPM), enormous efforts have been devoted to studies evaluating the validity of this model, a unique breakthrough and valuable contribution to the world of financial economics. Some empirical studies conducted, have appeared to be in harmony with the principles of CAPM while others contradict the model. The aim of this paper is to study if the CAPM holds on the Zimbabwe Stock Exchange, meaning: 1. If higher beta yields higher expected return 2. If the intercept equals zero/average risk-free rate and slope of SML equals the average risk premium and 3. If there exist linearity between the stock beta and the expected return Monthly stock returns for twenty (28) firms listed on the Zimbabwe Stock Exchange are used. The data ranges from January 2003 to December 2008, a period of six years. To test the CAPM, this study will use approach methods as described by Black, Jensen and Scholes (1972) time-series test as well as Fama and MacBeth (1973) cross-sectional test. It turns out that each of the investigation conducted is a confirmation of the other that the empirical investigations carried out during this study do not fully hold up with CAPM. The data did not provide evidence that higher beta yields higher return while the slope of the security market line is negative and downward sloping. The data also provide a difference between average risk free rate, risk premium and their estimated values. However, a linear relationship between beta and return is established.

Item Type: Article
Uncontrolled Keywords: Security Market Line,Average Risk Premium,Stock Exchange,Capital Asset Pricing Model,Arbitrage Pricing Theory,Zimbabwe Stock Exchange
Divisions: Universities > State Universities > University of Zimbabwe
Depositing User: Mr. Edmore Sibanda
Date Deposited: 30 Nov 2015 01:01
Last Modified: 30 Nov 2015 01:01
URI: http://researchdatabase.ac.zw/id/eprint/934

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