A study on the risk and return of the stocks on the PSE and sectoral indices with heterogeneous expectations from periods 2006-2015

• Main Authors: Abadier, Syra C., Ang, Allyson M., Del Rosario, Patricia M., Ko, Frances Angelica Domini T.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Stock exchanges > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/8995
• Institution: De La Salle University

This study relaxed the homogeneous expectations assumption of Capital Asset Pricing Model (CAPM) which is generally proved not to be an appropriate characterization of capital markets and empirically analyzed the effects of heterogeneous expectations on asset returns. Furthermore, the study analyzed the effects of heterogeneous expectations on sectoral and market performance for the Philippines setting. The study utilized 32 chosen companies from the Philippine Stock Exchange for the sample period 2006 to 2015. Of the total 61 regressions, only two beta coefficient estimates of market risk were observed to be significant at 5% significance level. Moreover, due to the large magnitudes of errors and theta risks, insignificant results were ensued from the two-staged indirect tests for CAPM with heterogeneous expectations using an errors-in-variables model conducted. In addition, due to the existence of the novel form of risks named theta risk I and II, results in the equilibrium return-risk relationship was observed to be non-linear. Moreover, several anomalies in existing empirical evidence on CAPM were identified such as the attempt to fit a linear model on a fundamentally non-linear return-risk relationship. However, as caveats this study suffers from methodological limitations on the indirect tests such as unobservable theta risks and utilization of errors-in-variables model. Finally, a significantly larger capital markets data, such as that of the U.S. are required to confirm theoretical predictions of the heterogeneous model specified in the analysis. This study relaxed the homogeneous expectations assumption of Capital Asset Pricing Model (CAPM) which is generally proved not to be an appropriate characterization of capital markets and empirically analyzed the effects of heterogeneous expectations on asset returns. Furthermore, the study analyzed the effects of heterogeneous expectations on sectoral and market performance for the Philippines setting. The study utilized 32 chosen companies from the Philippine