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Asian Journal of Research in Banking and Finance
Year : 2018, Volume : 8, Issue : 2
First page : ( 28) Last page : ( 35)
Online ISSN : 2249-7323.
Article DOI : 10.5958/2249-7323.2018.00010.X

Prognostic Ability of Beta in Predicting Stock Returns in Asymmetrical Stock Market -Indian Context

Acharya Shubhashree1, John Vivek Siju2, George Joel3

1Assistant Professor, Christ University, Bangalore, India

2Research Scholar, Christ University, Bangalore, India

3Research Scholar, Christ University, Bangalore, India

Online published on 16 February, 2018.

Abstract

Investors invest in shares by expecting the future prices to go up or down or to remain constant. The main aim of a potential investor will be to attain the highest return by considering the lowest risk. Predicting the future prices of a share can be found difficult and often impossible. Efforts have been made in developing models that will better help in predicting the future prices of shares. This paper looks at one such model, the Capital Asset Pricing Model (CAPM), and wants to test whether the beta calculated based on daily returns or monthly returns is more reliable in predicting the expected returns of a stock according to CAPM. The study considers six stocks divided as two low-cap stocks, two mid-cap stocks and two high-cap stocks from National Stock Exchange (NSE) and the prices of each stock have been considered for a period of 1 year. The data was mined from secondary sources, and the stationarity of the data has been validated by ADF Unit Root test and GARCH model. The results reveal that beta calculated using daily returns is more accurate in predicting the future prices of the share than beta calculated using monthly returns.

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Keywords

Beta Value, CAPM, GARCH model, ADF Unit Root Test, NSE.

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