Article summary on Estimation of Expected Return CAPM vs FAMA

 

Running head: A REVIEW OF BARTHOLDY, J., & PEARE, P. (2!". E#TI$ATIO% OF EPE'TED RETR%: 'AP$ V#. FA$A FA$A A%D FRE%'H

)

ARTI'LE REVIEW E#TI$ATIO% OF EPE'TED RETR%: 'AP$ V#. FA$A A%D FRE%'H

Hani *a+- /in0i Hahi ni1ei03 #4ien4e $a+a3ia 2)! E0ia0i-n -5 E67e40ed Re0un: 'a7 1. Faa and Fen4h In 0hi 7a7e, au0h- 4-7ae 0he 7e5-an4e -5 -ne85a40- -de+ ('AP$" and Faa and Fen4h Fen4h 0hee8 0hee85a4 5a40- 0- -de+ -de+ in e0i e0ia0i a0ing ng e67e40e e67e40ed d e0un e0un 5- indi1id indi1idua+ ua+ 0-49 0-49.. A5 A50e  0e  e0ia0ing indi1idua+ 0-49 e0un uing 'AP$ i0h di55een0 0ie 5ae, da0a 5e;uen4ie and inde6e au0h- 5-und 0ha0 ! 3ea -5 -n0h+3 da0a and e;ua+8eigh0ed inde6 i di55een0 0- 0he 4--n 4- -n+3 +3 ugge ugge0ed 0ed 1a+ue8 1a+ue8ei eigh0 gh0ed ed inde6, inde6, 7-1id 7-1idee 0he /e0 /e0 e0i e0ia0e a0e.. Wi0h Wi0h a1eage a1eage <= -5  1aian4e in e0un 7e5-an4e -5 0he -de+ i 1e3 7--. Then, au0h- e0ia0e i0h Faa and Fen4h -de+ uing ! 3ea -5 -n0h+3 da0a and n-0 u4h /e00e> inde7enden0 inde7enden0 -5 0he inde6 ued, i0 e67+ain -n a1eage != -5 di55een4e in e0un. Thee eu+0 i++ ine1i0a/+3 aie ;ue0i-n a/-u0 0he ue -5 ei0he -de+ 5- e0ia0i-n -5 indi1idua+ e67e40ed 0-49 e0un. The 0- ain a+0ena0i1e a1ai+a/+e 5- e0ia0i-n -5 e67e40ed e0un - 4-0 -5 e;ui03 5-  indi1idua+ 0-49 ae a ing+e85a40- -de+ (- 'a7i0a+ Ae0 Pi4ing $-de+ ?'AP$@" and 0he 0hee85a40- -de+ ugge0ed /3 Faa and Fen4h. Thee5-e 0he -/e40i1e -5 0hi 7a7e i 04-7a 4- 7ae e 0he 0he 7e57e5- an4 an4ee -5 0he 0he Faa Faa F Fen en4h 4h -de+ -de+ i i0h 0h 'AP$ 'AP$ 55- in indi di1i 1idu dua+ a+ 0 0-4 -49 9.. Fu0he-e 0he e4-nd -/e40i1e i 0- 5ind 0he /e0 inde6, 0ie 5ae, and da0a 5e;uen43 5- 

 

A REVIEW OF E#TI$ATIO% OF EPE'TED RETR%: 'AP$ V#. FA$A A%D FRE%'H 2

e0ia0ing /e0a, and 0hee5-e e67e40ed e0un, /aed -n 'AP$. Whe0he - n-0 di1idend h-u+d /e in4+uded in 0he e0un and he0he a e0un - e64e e0un h-u+d /e ued hen e0ia0ing /e0a ae a+- e6ained. The 5inding ugge0ed ! 3ea -5 -n0h+3 da0a ae in 5a40 0he a77-7ia0e 0ie 7ei-d and da0a 5e;uen43 5- e0ia0i-n -5 /e0a. On 0-7 -5 0ha0, an e;ua+ eigh0ed inde6, a -77-ed 0- 0he 4--n+3 e4-ended 1a+ue8eigh0ed inde6, 7-1ide a  /e00e e0ia0e a+- 5-unded. 5-unded . I0 d-e n-0 a77ea a7 7ea 0- a00e he0he di1idend d i1idend ae in4+uded in 0he inde6 - n-0 - he0he he 0he a e0un - e64e e0un ae ued in 0he egei-n e;ua0i-n. Ri4had R-++ 7-in0ed -u0 in hi 7eiden0ia+ adde 0- 0he Aei4an Finan4e A-4ia0i-n (R-++, )CC" 0ha0 0he genea+ 7e5-an4e -5 /e0a in e67+aining 7-05-+i- e0un i n-0 gea0. A di4ued a/-1e 5- an3 7a40i4a+ a77+i4a0i-n, i0 i indi1idua+ e0un 0ha0 ae e+e1an0, - i0 i 7e0inen0 0- a9  h- e++ i 'AP$ e67+ain e0un -n indi1idua+ 0-49. F- 0he eu+0 -/0ained hee, 0he ane i -n4e again n-0 gea0. Au0h- high+igh0 high+igh0ed ed 0he ;ue0i-n i 0ha0 -5 a 5i e0ia0ing e0ia0ing i0 4-0 -5 e;ui0 e;ui03. 3. Hen4e, 'AP$ and Faa Fen4h, i0 i aued 0ha0 an e0ia0e 5- 4-0 -5 e;ui03 i -/0ained uing a i7+e i 7+e e0ia e0ia0i0i-n n 0e4hni 0e4hni;ue, ;ue, in 7a0i 7a0i4u+a 4u+a, , in e+a0i e+a0i-n -n 0- 0he a-un0 a-un0 -5 da0a e;ui e;uied ed 5-  e0ia0i-n. I5 uing 'AP$, e0un -n a a9e0 inde6 and 0he e0un -n 0he 0-49, -1e 0he e0ia0i-n 7ei-d i 0he -n+3 da0a needed. Whi+e uing Faa Fen4h, da0a 5- 0he addi0i-na+ 05a40- ae a+- e;uied. Thi 7a7e 4-7ae 0he 7e5-an4e -5 0he 'AP$ i0h 0he Faa

 

A REVIEW OF E#TI$ATIO% OF EPE'TED RETR%: 'AP$ V#. FA$A A%D FRE%'H <

Fen4h -de+ unde 0he au70i-n 0ha0 a i7+e e0ia0i-n 0e4hni;ue, in 7a0i4u+a in e+a0i-n 00he a-un0 -5 da0a e;uied, i ued.  Au0h- ue R2 5- a 4-8e40i-n egei-n uing indi1idua+ ) 3ea 0-49 e0un a 0he de7ende de7enden0 n0 1aia/ 1aia/+e +e and e0ia e0ia0ed 0ed 5a40- 5a40-(" (" /aed /aed -n 7a 7a00 e0 e0un un a 0he e67+an e67+ana0a0-3 3 1aia/+e(". Au0h- 4i0e u55i4ien0 +i0ea0ue and en0i-n 0ha0 7a0 0ud3 5-4ued -n ea-n 5- di55een4e in e0ia0ed /e0a /e0een 7ei-d and 0he a/i+i03 -5 hi0-i4a+ /e0a 0- 7edi40 5u0ue /e0a. He +i0ed B+ue ()!", 'a+e0-n and La9-nih-9 ()C!", *+e9-93 and $a0in ()!", and Rei++3 and Wigh0 ()CC" a e6a7+e. Bae Ba ed d -n e eu u+0 +0 -5 0hi 0hi 7a 7a7e 7e,, ! 3e 3ea a -5 -n0 -n0h+ h+3 3 da da0a 0a a7 a77e 7ea a 0- /e a77a77-7 7ia ia0e 0e,, 4-n4+uded 0ha0 0he ue -5 ! 3ea -5 -n0h+3 da0a and 0he 'R#P e;ua+8eigh0ed inde6 7-1ide 0he /e0 e0ia0e 5- /e0a, and 0hee5-e e67e40ed e67e4 0ed e0un, /aed -n 'AP$. A+- 0he a/i+i03 -5 /e0a 0- e67+ain di55een4e di55een4e in e0un in u/e;uen0 u/e;uen0 7ei-d ange ange 5- a +- -5 .)= 0- a high -5  )).<= a4- 3ea and i a0 /e0 <= -n a1eage ae 5-unded. I0 i -5 4-n4en 0ha0 - +i00+e -5 0he di55een4e in e0un /e0een 0-49 ae e67+ained, unde u4h 5a1-a/+e 4i4u0an4e 9n-n 0ha0 0he ana+3i a d-ne 5- %Y#E 0-49 0ha0 0ade -e 0han != -5 0he 0ie. The +- e67+ana0-3 7-e -5 /-0h 0he 'AP$ and 0he Faa Fen4h -de+ ugge0 0ha0 nei0he -de+ i ue5u+ 5- e0ia0i-n -5 4-0 -5 e;ui03, a0 +ea0 5- 0he i7+e e0ia0i-n 0e4hni;ue ued hee.

 

A REVIEW OF E#TI$ATIO% OF EPE'TED RETR%: 'AP$ V#. FA$A A%D FRE%'H 

F- 0he a+0en a+0ena0i a0i1e, 1e, au0h- au0h- ugge ugge0ed 0ed indi1i indi1idua dua++ 5i 5i  h-u+d h-u+d ue 7-5e 7-5eii-na+ na+ /e0a /e0a  7-1ide 5- -/0aining 0hei /e0a e0ia0e in0ead -5 e0ia0ing 0he 0hee+1e, and 0ha0  7-5ei-na+ /e0a 7-1ide h-u+d ue -e 4-7+e6 0e4hni;ue 0han ued in hi 7a7e. Au0h- 0eed 0ha0 0hi iue 4ann-0 /e 0a9en 5- gan0ed and 7-in0 u7 5- 5u0ue eea4h 04-7ae 0he /e0a 5- /e0a 7-1ide i0h 0h-e -/0ained uing i7+e e0ia0i-n 0e4hni;ue.

 

A REVIEW OF E#TI$ATIO% OF EPE'TED RETR%: 'AP$ V#. FA$A A%D FRE%'H !

Re5een4e Ba0h-+d3, J., & Peae, P. (2!". E0ia0i-n -5 e67e40ed e0un: 'AP$ 1. Faa and Fen4h. In0ena0i-na+ Re1ie -5 Finan4ia+ Ana+3i, )(2!", 82. d-i:).))G.i5a.2.). R-++, R. ()CC". R2. J-una+ -5 Finan4e, <(2", !) !GG. B+ue, $. ()!". Be0a and 0hei egei-n 0enden4ie. J-una+ -5 Finan4e, <(<", C! !. 'a+e0-n, W., W., & La9-nih-9, J. ()C!, Janua3Fe/ua3". Ri9 and e0un -n e;ui03: The ue and iue -5 hi0-i4a+ e0ia0e. Finan4ia+ Ana+30 J-una+, ), <C . Rei++3, F., F., & Wigh0, D. ()CC, #7ing". A 4-7ai-n 4-7ai-n -5 7u/+ihed /e0a. J-una+ -5 P-05-+iP- 05-+i$anageen0 GG. Bune, R. F., Eade, *., Hai, R., & Higgin, R. ()C". Be0 7a40i4e in e0ia0ing 0he 4-0 -5  4a7i0a+: #u1e3 and 3n0hei. Finan4ia+ Pa40i4e and Edu4a0i-n, C()", )< 2C.

 

A REVIEW OF E#TI$ATIO% OF EPE'TED RETR%: 'AP$ V#. FA$A A%D FRE%'H G

ATTA'H ARTI'L ATTA'H ARTI'LE E hee - a a00a4hen0 0- eai+ i0h e1ie