A study on the risk and return of the stocks on the PSE and sectoral indices with heterogeneous expectations from periods 2006-2015

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

Dulani Jayasuriya

Defense Panel Chair

Edralin C. Lim

Defense Panel Member

Junette Perez

Rene Betita

Abstract/Summary

This study relaxed the homogeneous expectations assumption of Capital Asset Pricing Model (CAPM) which is generally proved not to be an appropriate characterization of capital markets and empirically analyzed the effects of heterogeneous expectations on asset returns. Furthermore, the study analyzed the effects of heterogeneous expectations on sectoral and market performance for the Philippines setting. The study utilized 32 chosen companies from the Philippine Stock Exchange for the sample period 2006 to 2015. Of the total 61 regressions, only two beta coefficient estimates of market risk were observed to be significant at 5% significance level. Moreover, due to the large magnitudes of errors and theta risks, insignificant results were ensued from the two-staged indirect tests for CAPM with heterogeneous expectations using an errors-in-variables model conducted. In addition, due to the existence of the novel form of risks named theta risk I and II, results in the equilibrium return-risk relationship was observed to be non-linear. Moreover, several anomalies in existing empirical evidence on CAPM were identified such as the attempt to fit a linear model on a fundamentally non-linear return-risk relationship. However, as caveats this study suffers from methodological limitations on the indirect tests such as unobservable theta risks and utilization of errors-in-variables model. Finally, a significantly larger capital markets data, such as that of the U.S. are required to confirm theoretical predictions of the heterogeneous model specified in the analysis. This study relaxed the homogeneous expectations assumption of Capital Asset Pricing Model (CAPM) which is generally proved not to be an appropriate characterization of capital markets and empirically analyzed the effects of heterogeneous expectations on asset returns. Furthermore, the study analyzed the effects of heterogeneous expectations on sectoral and market performance for the Philippines setting. The study utilized 32 chosen companies from the Philippine

Abstract Format

html

Language

English

Format

Electronic

Accession Number

CDTU001456

Shelf Location

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

Physical Description

77 : illustrations (some color) ; 29 cm. + 1 computer optical disc ; 4 3/4 in.

Keywords

Stock exchanges--Philippines

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