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Group Research Project

Jack Treynor introduced the concept of the capital asset pricing model to build on diversification and modern portfolio theory introduced by Harry Markowitz (Levy, 2011). Capital asset pricing model is simple to use; this has made it possible to retain popularity despite the modern approaches to asset pricing and portfolio selection. This financial project aims at analyzing a given equally weighted portfolio, which constitutes five types of stocks listed in the Australian Stock Exchange. The project will measure the rate of return on securities of Woolside Petroleum, Santos, Oil Search, Aurora Oil & Gas and Beach Petroleum. The systematic risk will be determined using Beta as the basis of measurement. The project will also evaluate the performance of the selected stock using the capital asset pricing model. The result from the analysis is beneficial to both current and prospective investors when making investment decisions. The analysis will also enable investors to decide whether to add their investment assets to the existing portfolio by finding non-diversifiable risk in the investments. The project will consider thirty-six observations consisting of monthly rates of return between January 2010 and December 2012. This will act as a representative sample for estimating the risks involved in each class of stock. Prior to estimating the capital asset pricing for the selected portfolio, the model will be tested for each stock. The Background of Companies Woodside Petroleum Woodside Petroleum Limited explores and produces petroleum in Australia (Roth, 2011). Woodside is Australia’s largest independent and dedicated oil and gas company with headquarters in Perth, Western Australia. The company is listed on the Australian Securities Exchange. Woodside focuses on the exploration, assessment, development, processing and supplying relative products and services. Santos Limited Santos limited produces and supplies oil and gas to its Australian and Asian customers. The origin of Santos is traced back to Cooper Basin since the year 1964 (Roth, 2011). The company is one of the largest suppliers of oil and gas to the domestic and foreign markets. Presently, Santos has an exploration-led Asian portfolio focusing on three countries including Papua New Guinea, Indonesia and Vietnam. Santos focuses on explorations, exploiting, processing, transportation and marketing of hydrocarbons. The company has over 3,000 employees in Australia and Asia. The foundations of Santos are based on sustainable operations and collaborating with host communities, business partners and shareholders. Oil Search Limited Oil Search Limited is Papua New Guinea’s largest oil and gas producer, which was incorporated in the year 1929. The company has a 29% interest in the world scale Papua New Guinea (PNG) LNG project (Roth, 2011). Oil Search Limited is a public listed company on the Port Moresby and Australian stock exchanges. The Independent State of Papua New Guinea holds 15% of the company’s interest, and this is the largest shareholder in the company. Oil Search Limited has launched exploration activities in Papua New Guinea, Kurdistan, Tunisia and Yemen. Aurora Oil & Gas Aurora Oil & Gas Limited, founded in 2005, is an Australia based oil and gas exploration and production ...Show more

Summary

Capital Asset Pricing Model Professor: Institution: City and State: Date: Table of Contents Introduction 3 The Background of Companies 4 Woodside Petroleum 4 Santos Limited 4 Oil Search Limited 4 Aurora Oil & Gas 5 Beach Petroleum Limited 5 Literature Review 5 Methodology 7 Specification of the Model 7 References 10 Capital Asset Pricing Model Introduction Financial managers use the capital asset pricing model (CAPM) to determine a theoretically required rate of return of an asset…
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Group Research Project essay example
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