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Calculate the betas and average returns for all stocks

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Reference no: EM131488805

Portfolio Management Project Assignment

Download the article "Equilibrium in an Imperfect Market: A constraint in the number of securities in a portfolio" by H. Levy (1978) attached on the portal. Read the article and get familiarized with the procedure. 

In empirical analysis CAPM is estimated in two stages.

Stage I (time-series regression)

Stage II (cross-section regression)

Once you have read the article go back and spend some time on the beginning of the article (pg. 643 and 644) where the procedure mentioned previously is explained.

Using the data given in file CAPMa/b.xlsx, use the procedure described in the article (Eq.1, 2, 1' and 3) and replicate it using the data in the file.

The file CAPMa/b.xlsx contains share prices of 131 shares of the largest European corporations listed. Their share prices are given between the 01.01.2001 to 31.12.2008. The file also contains an Index (MSCI) which can you can use as a proxy for your market portfolio.

After performing the regressions you would need to answer the following questions.

Answer the following questions:

a. Calculate the Betas and average returns for all stocks and describe their distributions. The distribution of Beta and the distribution of the returns individually.

b. Are these results supportive of the CAPM? Test the results of your regression and comment on them.

c. Test the hypothesis that Beta of your stocks is 1.

d. Test the hypothesis that Alpha on all your regressions is positive.

e. Do the analyses again but now include the dummy variable (listed Dummy 1) in your linear regression model. Is the coefficient significant? What do you think about this?

f. What can you say about the CAPM in general?

Assignment Files -

https://www.dropbox.com/s/6z9vhonc2j6biqr/Assignment%20Files.rar?dl=0

Verified Expert

Expected return and market beta of the CAPM always have the very less variance which can holds an efficient portfolio and these are mainly applied in the market portfolio. So, we can easily find the market proxy with minimum variance and these are used in the expected returns. In CAPM, the portfolios are formed by sorting stocks based on the price ratios which can produce average returns. At the same time, market betas showed no positive relation with average returns. Performance between the mutual funds and managed portfolios are usually determined by CAPM with minimum variance.

Reference no: EM131488805

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Reviews

inf1488805

6/2/2017 6:23:16 AM

The excel file should be complete, there should not be missing parts in calculations. Using the excels from CAPMa and CAPMb exc. that i have send it to you, it should be calculated the betas, average returns for all stocks and their distribution and returns individually, as well as to be tested the hypothesis of Beta being 1 and Alpha hypothesis as the assignment says. Please provide me this calculations in excel file. Thanks

len1488805

5/8/2017 8:06:40 AM

The assignments answers and results needs to be sent to me in word document together with excel spreadsheet with the calculations. Please provide the word document and the excel spreadsheet with your calculations in one email. Using the data given in file CAPMa/b.xlsx, use the procedure described in the article (Eq.1, 2, 1’ and 3) and replicate it using the data in the file.

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