On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments
Oluwasegun Micheal Ibrahim,
Dare Jayeola
Issue:
Volume 2, Issue 2, December 2018
Pages:
66-70
Received:
28 November 2018
Accepted:
2 January 2019
Published:
18 February 2019
DOI:
10.11648/j.cse.20180202.11
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Abstract: Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently, the investors’ aim is to make an optimal choice that will lead to the minimization of risk and maximization of return. To achieve this aim, standard theoretical and computational procedures must be followed. One way of doing this is to construct and analyze models capable of effectively minimizing risk, and proffer suggestions that would improve the return on investment. This paper investigates the relationship between risk and expected returns for investing in Precious metals and crude oil for five consecutive years: 2012 to 2016, using the CAPM. Two striking results were obtained from this research as control mechanisms for potential investors. First, it is revealed that the higher the value of (risk), the higher the expected returns for investing in Precious metals and crude oil. Second, the lower the risk associated with the Precious metal and crude oil’s investment, the lower the expected returns.
Abstract: Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently,...
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