CAPM: As a predictor of stock returns of Philippine real estate and financial stocks

Date of Publication

2016

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Management of Financial Institutions

Subject Categories

Finance and Financial Management

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Edralin Lim

Defense Panel Chair

Alfredo Santoyo

Defense Panel Member

Ricardo Ferdinand Basallo

Abstract/Summary

This study studied the predicting power of the CAPM model in the Philippine real estate and financial stocks. The group aimed to find out if the CAPM model can predict returns of Philippine real estate and financial stocks. To know if the CAPM model has predicting power, the group used yearly data with time lag to compute for the CAPM expected return of a stock and then compare the results with the actual returns of the stock to see if a stock is overvalued, undervalued or correctly valued. The CAPM variables were presented by the following: Rf= the risk-free rate (the 91 day monthly treasury bill average) beta = the asset's market beta (using the PSEi index) Rm = the expected return of a market portfolio. The results showed that for all years and all stocks, the stocks are all either overvalued or undervalued but never correctly valued.

In another test, the group used monthly data without time lag to see if CAPM returns and actual returns could be the same using the same variables listed above to compute for the CAPM return. The results showed that 13 of the 14 stocks studies had statistically the same CAPM return and actual return. The group use a t-test for significance testing and used p-values as well to determine significance. The results showed that all real estate stocks and four out of five financial stocks studies had values that are the statistically the same for both computed CAPM expected return and actual return.

The data set meanwhile contained 9 real estate stocks and 5 financial stocks. These stocks were chosen by the basis of a firm's data availability (such as stock prices) or its total assets. The group used both monthly data (from March 2009-July 2016) as well as yearly data (2009-2016) as the study's timeframes.

The group concluded that the CAPM can not indeed predict the actual returns of a stock of both Philippine real estate and financial stocks as it could be seen that there is a difference between the computed CAPM expected return and the actual returns of the stocks. The group chose the results that came from using yearly data with time lag as the main purpose of the study is to see if the CAPM can predict stock returns.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU19494

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

122, 4 leaves, 28 cm. + 1 computer disc (4 3/4 in.)

Keywords

Capital assets pricing model; Stocks--Philippines

Embargo Period

5-10-2021

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