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The validity of the Capital Asset Pricing Model, in the Modern Irish Market

O’Neill, Mark (2021) The validity of the Capital Asset Pricing Model, in the Modern Irish Market. Masters thesis, Dublin, National College of Ireland.

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Capital Asset Pricing Model (CAPM) is a renowned financial model, that explains the risk associated with stocks expected returns and is based on Henry Markowitz, mean-variance portfolio model developed in the 1950’s. Since modern finance has evolved CAPM has received criticism on its restrictive assumptions and dependency on one factor, the systematic risk, beta.

The study will analyse the validity of CAPM in the ISEQ 20 Index, for a sample of 20 stocks daily returns during the most volatile and uncertain period of modern global financial history, 20019-2021. The research will be conducted on both portfolios and individual securities in order understand the working of CAPM’s single risk factor, beta. The methodology adopted, will aim to clarify the linear positive risk-return relationship, through a series of a linear regressions, followed by a t-test of the intercept and slope.

Capital Asset Pricing Model, is a valid indicator of the systematic risk, however, the analysis of CAPM in this study is inconsistent and could not find complete support of the CAPM model. However, some of the pricing models features could not be rejected.

The outcome of the study can be seen as a stimulus for further researches in this field, given the poor academic attention at the Capital Asset Pricing Model, in the Irish context and during the global financial crisis.

Item Type: Thesis (Masters)
Uncontrolled Keywords: Capital Asset Pricing Model; Risk-Return Relationship; Linear-Regression; Covid-19; Global Minimum Variance Portfolio; Efficient Frontier
Subjects: H Social Sciences > HG Finance > Investment
H Social Sciences > HG Finance > Investment > Stock Exchange > Irish Stock Exchange
Divisions: School of Business > Master of Science in Finance
Depositing User: Clara Chan
Date Deposited: 25 Feb 2022 15:36
Last Modified: 25 Feb 2022 15:36

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