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This is how stock exchanges role and so as the financial advisors of big multinationals, who see events to be clusters of time or moments. This study will give an analytical review on the relationship of event studies and abnormal returns, projected in the past empirical studies of different companies. How event studies are carried out to generate abnormal returns and what is the role of abnormal returns in creating firms value, will also be elaborated in this study (Getz, 2012). Event An event is a reflection of time or moment projecting a situation where stocks raise or drop, and investors...

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This model has been heavily criticised and debated over the past decades, and many of the economists are of the opinion that this framework is not adequate enough to assess various risk factors comprehensively. However, none of the opponents could introduce a potential alternative to this concept till date. This paper will critically analyse the applicability of the CAPM in corporate finance applications in the context of modern business environment. Corporate applications of CAPM Hillier et al (2008, section 5.1) provide a detailed view of the corporate applications of the capital asset...

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CAPM (Capital Asset Pricing Model)
and expected returns which is denoted as r. The ? is used as a measure of non diversified risk and implies that the expected return is the return on a risk free asset in addition to a risk premium (Laubscher, 2002). The risk premium will be equivalent to the market return in surplus of the risk free rate which is multiplied by the share portfolio. This is the reason that ? is regarded as the difference between the returns on various share portfolio. The formula for CAPM model is denoted below: R = Rf + ?(Rm - Rf) R = Expected return on the share/portfolio. Rf = Risk-free rate of return. ? =...

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Empirical Asset Pricing Theory
In other words, the paper will look at the negative covariance of SDF and excess returns. The paper will also outline the Fama-French factors. This will include entailing how these factors work, and the motives behind choosing or selecting of models. Finally, the paper will discuss how the technique used by Pastor and Stambaugh differ from the ones used by Fama-French factors. Stochastic Discount Factor Pricing Model SDF as a Factor Pricing Model According to Fama and French (25 - 30) this model helps in the formulating of n econometric analysis that is used in the pricing of assets. The...

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The Importance of Proper Asset Allocation.
The principal determinants of the investment results are allocation of investments in stocks, cash and equivalents and in bonds. Asset allocation constructs the framework of the portfolio and addresses the issue of where to invest money effectively to gain maximum return. Proper allocation of assets has the potential to increase the investment results and lower down the volatility of the overall portfolio. However critics are of the opinion that interdependence among the financial markets makes the traditional form of asset allocation less volatile. Again some of the researchers viewed...

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Admission/Application Essay

The Capital Asset Pricing Model
The equation that is applied in the calculation of CAPM for the assets is as follows: E(Ri) =RF +?i [E(RM) - RF] Where, E (Ri) = expected return of the ith level. Rf = risk-free return of an asset (such as short-term government securities), ?i = beta coefficient of ith level, and (RM) = Expected return on the market. The main aim of the CAPM model underlies the identification of the market portfolio as the tangency portfolio between supply and demand in balance. However, there are several theoretical limitations that have hindered the operations of the model, in the manner that these...

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Capital Asset Pricing Model
Usually, the overall volatility of the market is measures through proxies when implementing this model, for instance, the use of FTSE index. Such proxies are not usually the true measures of the market volatility which is at the core of the CAPM assumptions. Therefore, the model estimations from CAPM with use of market proxies for volatility can only predictions that are approximates and not the accurate measures of risk and return relationships. Another unrealistic assumption the CAPM model makes is the existence of a free risk security. In reality, there is not security that is free from...

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