An Analysis of the Risk and Return Relationship and Testing the Validity of Capital Asset Pricing Model (Capm) on the Zimbabwe Stock Exchange
- Author
- Makunya, Munashe
- Title
- An Analysis of the Risk and Return Relationship and Testing the Validity of Capital Asset Pricing Model (Capm) on the Zimbabwe Stock Exchange
- Abstract
-
The risk-return relationship is one of the most crucial concepts of investment theory and this
is also a growing concern for various investors The main purpose of this study was to identify
the risk- return relationship. The objectives of study include: to identify the relationship
between risk and expected return on the Zimbabwe Stock Exchange, identify whether the
expected rate of return and stock beta is linearly related and to establish the validity of
Capital Asset Pricing Model on Zimbabwe Stock Exchange (ZSE). The study employed the
quantitative descriptive research design.. The study used the monthly stock prices for the ten
counters listed on ZSE for the period of January 2014 up to March 2019. The study used the
time series regression to test the relationship between risk and return. Results from the study
indicate that UNIFREIGHT (P = 0.001), OLDMUTUAL (P = 0.016) and LAFARGE (P =
0.034) were statistically significance at 0.005 significance level. The results of the study
indicated that high risk is associated with higher returns therefore there is a positive
relationship between risk and expected return thus this do not violate the CAPM assumption.
From the research findings it also concluded that the Capital Asset Pricing Model is valid for
ZSE. Furthermore, there are other studies that take into consideration other factors like
inflation and exchange rates which affects the stock return and these studies had employed
advanced models such as GARCH model that were recommended by the researcher. - Date
- 2021
- Publisher
- BUSE
- Keywords
- Risk and Return Relationship
- Capital Asset Pricing Model
- Supervisor
- Mr. Basira
- Item sets
- Department of Statistics and Mathematics
