Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model

Abonongo John; Ackora-Prah J.; Kwasi Boateng

doi:doi:10.11648/j.jim.20170601.13

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Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model

Abonongo John, Ackora-Prah J., Kwasi Boateng

Published in Journal of Investment and Management (Volume 6, Issue 1)

Received: 13 September 2016 Accepted: 30 September 2016 Published: 14 December 2016

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Abstract

Among the paramount information in the stock market is the awareness of the systematic risk of stocks which plays essential role in investment choices. This paper measured the systematic risk of seven stocks on the Ghana Stock Exchange (GSE) using monthly closing prices and the 91 day T-bill from the period 2011 to 2015. The CAPM was employed in measuring the systematic risk of the stocks. The results revealed that, CAL, FML and TLW were defensive stocks since each had a market beta less than one (1). PBC, CLYD, EGL and UNIL had the same systematic risk as the market since each recorded a market beta of one (1). All the seven stocks each had a positive market beta implying that they move in a similar manner as the market. The compensation for investing in each of the stock was approximately at 3%. The diversifiable risk associated with each of the stock was very low since few of the returns were scattered along the regression line.

Published in	Journal of Investment and Management (Volume 6, Issue 1)
DOI	10.11648/j.jim.20170601.13
Page(s)	13-21
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2016. Published by Science Publishing Group

Keywords

Systematic Risk, CAPM, Risk Premium, Market Beta, Expected Return

References

[1]	Chudhary, K. and Chudhary, S. (2010). Investigating the relationship between stock returns and systematic risk based on CAPM in the Bombay stock exchange. Eurasian Journal of Business and Economics, 3 (6): 127–138.
[2]	Elton, E. J. and Gruber, M. J. (1995). Modern Portfolio Theory and Investment Analysis. 5th ed. Wiley, New York.
[3]	Fama, E. F. and Macbeth, J. D. (1973). Risk, return and equilibrium: empirical tests. Journal of Politcal Economy, 7: 607–636.
[4]	Khaldoun M. A (2011). The Determinants of Systematic Risk in the Jordanian Capital Market. International Journal of Business and Social Sciences, 2 (20): 85-95.
[5]	Lintner, J. (1965). The valuation of risk asset and the selection of risk investment in stock portfolio and capital budgets. The Review of Economics and Statistics, 47 (1): 13–37.
[6]	Malkiel, B. and Xu, Y. (2005). Idiosyncratic risk and security returns.
[7]	McCurby, T. H. and Morgan, I. G. (2011). Intertemporal risk in the foreign currency futures basis. Canadian Journal of Administrative Sciences, 16 (3): 172–184.
[8]	Mehrara, M., Fatahati, Z., and Zahiri, N. H. (2014). The relationship between systematic risk and stock returns in Tehran stock exchange using the capital asset pricing model (CAPM). International Letters of Social and Humaniatic Sciences, 21: 26–35.
[9]	Omet, G. and Al-Debie, M. (2000). The association between systematic risk and debt to-equity ratio in Amman financial market. Dirasat, the University of Jordan, pages 461–466.
[10]	Rodrigures, A. (2009). A modern portfolio theory approach to asset management in the listed South African property market. Master’s thesis, Faculty of Engineering, University of Witwatersrand, Johannesburg. Unpublished MSc dissertation, Faculty of Engineering, University of Witwatersrand, Johannesburg.
[11]	Sharpe, W. F. (1964). Capital asset prices: a theory of market equilibrium under conditions of risk. Journal of Finance, 19 (3): 425–442.
[12]	Sharpe, W. F. and Cooper, G. M. (1972). Risk return classes of New York stock exchange common stocks, 1931-1967. Financial Analysts Journal, 28 (2): 46–81.

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APA Style

Abonongo John, Ackora-Prah J., Kwasi Boateng. (2016). Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model. Journal of Investment and Management, 6(1), 13-21. https://doi.org/10.11648/j.jim.20170601.13

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ACS Style

Abonongo John; Ackora-Prah J.; Kwasi Boateng. Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model. J. Invest. Manag. 2016, 6(1), 13-21. doi: 10.11648/j.jim.20170601.13

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AMA Style

Abonongo John, Ackora-Prah J., Kwasi Boateng. Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model. J Invest Manag. 2016;6(1):13-21. doi: 10.11648/j.jim.20170601.13

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@article{10.11648/j.jim.20170601.13,
  author = {Abonongo John and Ackora-Prah J. and Kwasi Boateng},
  title = {Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model},
  journal = {Journal of Investment and Management},
  volume = {6},
  number = {1},
  pages = {13-21},
  doi = {10.11648/j.jim.20170601.13},
  url = {https://doi.org/10.11648/j.jim.20170601.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20170601.13},
  abstract = {Among the paramount information in the stock market is the awareness of the systematic risk of stocks which plays essential role in investment choices. This paper measured the systematic risk of seven stocks on the Ghana Stock Exchange (GSE) using monthly closing prices and the 91 day T-bill from the period 2011 to 2015. The CAPM was employed in measuring the systematic risk of the stocks. The results revealed that, CAL, FML and TLW were defensive stocks since each had a market beta less than one (1). PBC, CLYD, EGL and UNIL had the same systematic risk as the market since each recorded a market beta of one (1). All the seven stocks each had a positive market beta implying that they move in a similar manner as the market. The compensation for investing in each of the stock was approximately at 3%. The diversifiable risk associated with each of the stock was very low since few of the returns were scattered along the regression line.},
 year = {2016}
}

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TY  - JOUR
T1  - Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model
AU  - Abonongo John
AU  - Ackora-Prah J.
AU  - Kwasi Boateng
Y1  - 2016/12/14
PY  - 2016
N1  - https://doi.org/10.11648/j.jim.20170601.13
DO  - 10.11648/j.jim.20170601.13
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 13
EP  - 21
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20170601.13
AB  - Among the paramount information in the stock market is the awareness of the systematic risk of stocks which plays essential role in investment choices. This paper measured the systematic risk of seven stocks on the Ghana Stock Exchange (GSE) using monthly closing prices and the 91 day T-bill from the period 2011 to 2015. The CAPM was employed in measuring the systematic risk of the stocks. The results revealed that, CAL, FML and TLW were defensive stocks since each had a market beta less than one (1). PBC, CLYD, EGL and UNIL had the same systematic risk as the market since each recorded a market beta of one (1). All the seven stocks each had a positive market beta implying that they move in a similar manner as the market. The compensation for investing in each of the stock was approximately at 3%. The diversifiable risk associated with each of the stock was very low since few of the returns were scattered along the regression line.
VL  - 6
IS  - 1
ER  -

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Author Information

Abonongo John

Department of Mathematics, College of Science, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana
Ackora-Prah J.

Department of Mathematics, College of Science, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana
Kwasi Boateng

Department of Mathematics, College of Science, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana

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Plain Text BibTeX RIS

APA Style

Abonongo John, Ackora-Prah J., Kwasi Boateng. (2016). Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model. Journal of Investment and Management, 6(1), 13-21. https://doi.org/10.11648/j.jim.20170601.13

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ACS Style

Abonongo John; Ackora-Prah J.; Kwasi Boateng. Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model. J. Invest. Manag. 2016, 6(1), 13-21. doi: 10.11648/j.jim.20170601.13

Copy | Download

AMA Style

Abonongo John, Ackora-Prah J., Kwasi Boateng. Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model. J Invest Manag. 2016;6(1):13-21. doi: 10.11648/j.jim.20170601.13

Copy | Download

@article{10.11648/j.jim.20170601.13,
  author = {Abonongo John and Ackora-Prah J. and Kwasi Boateng},
  title = {Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model},
  journal = {Journal of Investment and Management},
  volume = {6},
  number = {1},
  pages = {13-21},
  doi = {10.11648/j.jim.20170601.13},
  url = {https://doi.org/10.11648/j.jim.20170601.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20170601.13},
  abstract = {Among the paramount information in the stock market is the awareness of the systematic risk of stocks which plays essential role in investment choices. This paper measured the systematic risk of seven stocks on the Ghana Stock Exchange (GSE) using monthly closing prices and the 91 day T-bill from the period 2011 to 2015. The CAPM was employed in measuring the systematic risk of the stocks. The results revealed that, CAL, FML and TLW were defensive stocks since each had a market beta less than one (1). PBC, CLYD, EGL and UNIL had the same systematic risk as the market since each recorded a market beta of one (1). All the seven stocks each had a positive market beta implying that they move in a similar manner as the market. The compensation for investing in each of the stock was approximately at 3%. The diversifiable risk associated with each of the stock was very low since few of the returns were scattered along the regression line.},
 year = {2016}
}

Copy | Download

TY  - JOUR
T1  - Measuring the Systematic Risk of Stocks Using the Capital Asset Pricing Model
AU  - Abonongo John
AU  - Ackora-Prah J.
AU  - Kwasi Boateng
Y1  - 2016/12/14
PY  - 2016
N1  - https://doi.org/10.11648/j.jim.20170601.13
DO  - 10.11648/j.jim.20170601.13
T2  - Journal of Investment and Management
JF  - Journal of Investment and Management
JO  - Journal of Investment and Management
SP  - 13
EP  - 21
PB  - Science Publishing Group
SN  - 2328-7721
UR  - https://doi.org/10.11648/j.jim.20170601.13
AB  - Among the paramount information in the stock market is the awareness of the systematic risk of stocks which plays essential role in investment choices. This paper measured the systematic risk of seven stocks on the Ghana Stock Exchange (GSE) using monthly closing prices and the 91 day T-bill from the period 2011 to 2015. The CAPM was employed in measuring the systematic risk of the stocks. The results revealed that, CAL, FML and TLW were defensive stocks since each had a market beta less than one (1). PBC, CLYD, EGL and UNIL had the same systematic risk as the market since each recorded a market beta of one (1). All the seven stocks each had a positive market beta implying that they move in a similar manner as the market. The compensation for investing in each of the stock was approximately at 3%. The diversifiable risk associated with each of the stock was very low since few of the returns were scattered along the regression line.
VL  - 6
IS  - 1
ER  -

Copy | Download