the risk-return relationship in the Hong Kong stock market examined by using the cointegration technique
论文作者:51lunwen论文属性:硕士毕业论文 thesis登出时间:2006-12-27编辑:点击率:3326
论文字数:10828论文编号:org200612272112349258语种:英语 English地区:中国价格:$ 66
关键词:risk-returnrelationshipHong Kong stock marketcointegration technique
the risk-return relationship in the Hong Kong stock market examined by using the cointegration technique
Abstract
Previous studies using ex post returns have found that the traditional CAPM
does not hold in the Hong Kong stock market. They found that there is a negative risk return relationship and that the risk-return relationship is explained by more than one
factor. In this
dissertation, the risk-return relationship in the Hong Kong stock market is
examined using the cointegration technique. The cointegration method enables the
existence of a long run equilibrium relationship between two variables to be identified.
Using the Engle-Granger two step approach, we observe that there is a statistically
significant and positive relationship between stock returns and market returns in the
Hong Kong stock market. Contrary to earlier studies, we thus find support for a positive
risk-return relationship, as specified in the traditional CAPM.
Table of Content
Abstract
Chapter 1 Introduction 1
Chapter 2 Literature Review 3
Chapter 3 Data Description and Methodology
3.1 Data Description 9
3.2 Methodology 15
Chapter 4 Empirical Testing
4.1 Introduction 19
4.2 The analysis of the Long-Run stocks excess returns 21
4.3 Estimating the error correction model 29
Chapter 5 Discussion and Conclusion 33
Appendix 35
Bibliography 42
Chapter 1: Introduction
International investment has attracted a great deal of attention from academic
researchers and practitioners in finance. Investors in developed financial markets are
increasing their allocations of investments to overseas market to seek higher return as
well as diversification. It is an important market for international investment because of
the high liquidity of the market, the presence of a legal system and an accounting
system similar to the Western standard, and its status as an indirect way to invest in
China. Hong Kong is also a leader in the mutual fund (known as unit trust in Hong
Kong) industry in Asia. As a result, many multinational investment firms are increasing
their presence in the Hong Kong market and it is important to look at investor’s
behavior in Hong Kong.
In this dissertation we will try to investigate the validity of the Capital Asset
Pricing Model (CAPM) in the Hong Kong stock market by mean of a cointegration test
and error correction model. The rationale behind this investigation is based on the fact
that most investors have built into their decision-making process a theoretical model—
the CAPM developed by Sharpe (1964) and Lintner (1965). It starts from the same
assumption as the capital market line and gives us the expected return for any asset or
portfolio as a function of a measure of risk called beta ( ).
The equation for the CAPM is:
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