New evidence on practical implications of the CAPM

Taussig, Roi D.

doi:10.1002/jcaf.22525

Cited by 4 publications

(3 citation statements)

References 32 publications

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“…Several decades later, the CAPM is still widely used in applications, such as estimating the cost of equity capital for firms and evaluating the performance of investment, often the only asset pricing model taught in MBA-level investment courses [27]. The model explains the linear relationship between the systematic risk coefficient, beta, and expected stock returns (Wang et al, 2017;Anjum and Rajput, 2021;and Taussig, 2022) [28][29][30]. The basic concept of the CAPM is a metric that explains expected excess return, beta risk, and the market risk premium by calculating the difference between an asset's return and the risk-free rate (Anuno, Madaleno, and Vieira, 2023) [31].…”

Section: Literature Reviewmentioning

confidence: 99%

Quantification of Expected Return of Investment in Wood Processing Sectors in Slovakia

Kánová,

Drábek,

Ćurić

et al. 2023

Forests

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The study focuses on the selected aspects of investment measurement and management for the support of financial and economic decision-making of investors in wood-processing sectors. The aim of the study was to analyze the indicators for the structure and cost of capital of furniture and paper/forest branches in Slovakia, quantify the actual expected return on investment based on the selected methodology, and consequently find out the fundamental differences resulting from the specific conditions of given sectors. Methodologically, the study uses procedures for the weighted average cost of capital (WACC), capital asset pricing model (CAPM) for determining the cost of equity, and calculation of the beta coefficient considering the risk premium. The results of the study demonstrated a similar levered beta in both analyzed sectors (1.17 in furniture, 1.20 in paper/forest), but in each sector for a different reason. The expected rate of return is higher in furniture (7.84%) compared to paper/forest products at the level of 6.04%. The findings provide the possibility of comparing the required and expected rate of return on invested capital and making the appropriate long-term investment decisions.

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Section: Literature Reviewmentioning

confidence: 99%

Quantification of Expected Return of Investment in Wood Processing Sectors in Slovakia

Kánová,

Drábek,

Ćurić

et al. 2023

Forests

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“…The traditional CAPM (Lintner, 1965; Sharpe, 1964) and (Black, 1972) explains the required return on each stock, based on the coefficient of systematic risk (Beta) and a risk premium. For example, the CAPM was tested by new empirical methods (Taussig, 2022b) and was found to be significant. Algebaly (2022) supports the validity of the conditional CAPM.…”

Section: Introductionmentioning

confidence: 99%

CAPM and a new investment decision method

Taussig

2023

J Corp Accounting Finance

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The traditional CAPM explains the return on each security, while the current study suggests a new methodology for “picking” a broad index, based on regression trees. Analysts’ recommendations on market prices are analyzed, and a one to three‐stage method is employed. The analysis suggests a few rules of thumb (only one to three stages) for buying or selling the CRSP US market index. The findings are robust, and the rules are reliable. Researchers and practitioners may benefit greatly from the new rules.

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“…Based on this principle, Lintner (1965), Mossin (1966), and Sharpe (1964) are considered pioneers and developers of the concept of the CAPM. The model explains the linear relationship between the systematic risk coefficient, beta, and expected stock returns (Wang et al 2017;Anjum and Rajput 2021;Taussig 2022). Moreover, the basic concept of the CAPM is a metric that explains expected excess return, beta risk, and the market risk premium by calculating the difference between an asset's return and the risk-free rate.…”

Section: Introductionmentioning

confidence: 99%

Using the Capital Asset Pricing Model and the Fama–French Three-Factor and Five-Factor Models to Manage Stock and Bond Portfolios: Evidence from Timor-Leste

Anuno,

Madaleno,

Vieira

2023

JRFM

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Timor-Leste is a new country still in the process of economic development and does not yet have a capital market for stock and bond investments. These two asset classes have been invested in international capital markets such as the US, the UK, Japan, and Europe. We examine the performance of the capital asset pricing model (CAPM) and the Fama–French three-factor and five-factor models on the excess returns of Timor-Leste’s equity and bond investments in the international market over the period 2006 to 2019. Our empirical results show that the market factor (MKT) is positively and significantly associated with the excess returns of the CAPM and the Fama–French three-factor and five-factor models. Moreover, the two variables Small Minus Big (SMB) as a size factor and High Minus Low (HML) as a value factor have a negative and significant effect on the excess returns in the Fama–French three-factor model and five-factor model. Further analysis revealed that the explanatory power of the Fama–French five-factor model is that the Robust Minus Weak (RMW) factor as a profitability factor is positively and significantly associated with excess returns, while the Conservative Minus Aggressive (CMA) factor as an investment factor is insignificant.

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New evidence on practical implications of the CAPM

Cited by 4 publications

References 32 publications

Quantification of Expected Return of Investment in Wood Processing Sectors in Slovakia

Quantification of Expected Return of Investment in Wood Processing Sectors in Slovakia

CAPM and a new investment decision method

Using the Capital Asset Pricing Model and the Fama–French Three-Factor and Five-Factor Models to Manage Stock and Bond Portfolios: Evidence from Timor-Leste

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