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THE EMPIRICAL TESTING OF CAPITAL ASSET PRICING MODEL AND OF THE ARBITRAGE PRICING THEORY

THE EMPIRICAL TESTING OF CAPITAL ASSET PRICING MODEL AND OF THE ARBITRAGE PRICING THEORY. ADRIAN COJOCARU . Market Data. Perio d Octob er 1998 – Septemb er 2002.

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THE EMPIRICAL TESTING OF CAPITAL ASSET PRICING MODEL AND OF THE ARBITRAGE PRICING THEORY

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  1. THE EMPIRICAL TESTING OF CAPITAL ASSET PRICING MODEL AND OF THE ARBITRAGE PRICING THEORY ADRIAN COJOCARU

  2. Market Data Period October 1998 – September 2002 SelectionI have selected 20 shares: All from the BET market indexand the rest from the Composite BET index, to insure diversification among different sectors of the economy End of the month returns, a total of 48 observations

  3. Normality Test

  4. 2.4 4 2.0 3 1.6 1.2 2 0.8 1 0.4 0.0 0 -.4 -.3 -.2 -.1 .0 .1 .2 .3 .4 .5 .6 .7 -1.2 -0.8 -0.4 0.0 0.4 0.8 I N X E L J

  5. CAPM Sharpe (1964) APT Ross (1976)

  6. „Cross-section” • Fama (1973) • Chen (1983) CAPM

  7. Principal Component Analysis Correlation Matrix=X’ X X’ X W = Λ W P=XW W’ = W-1 P’ P = W’ X’ X W = W’ W Λ = Λ X=PW-1

  8. Kaiser Criterion

  9. Cattell Test

  10. APT

  11. .07 .06 .05 .04 .03 .02 .01 .00 -.01 5 10 15 20 25 30 35 40 45 RENTMED RENTCAPM RENTAPT

  12. Residue Analysis A. APT residue analysis B. CAPM residue analysis

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