Relationship between beta and stock returns
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Relationship between beta and stock returns. Mayur Agrawal Varun Agrawal Debabrata Mohapatra Sung Kyun Park Vikas Yadav. Points. Why this figure is not following the investment tradition? Something behind we cannot see? Prove that higher risk is not always guaranteed higher return

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Relationship between beta and stock returns

Relationship betweenbeta and stock returns

MayurAgrawal

VarunAgrawal

DebabrataMohapatra

Sung Kyun Park

VikasYadav


Points
Points

  • Why this figure is not following the investment tradition?

  • Something behindwe cannot see?

  • Prove that higher risk isnot always guaranteedhigher return

  • Analyze the cause of this issue


M_Cap Data sets duration

1 year

N years

rtndate

1st Jan 1962

31st Dec 2008

Current Time

bgdate

enddate

  • Beta - Duration of experiment 1st Jan 1962 – 31st Dec 2008

  • Market Cap - Duration of experiment 1999 , 2002 , 2007 and 2008

  • Consider yearly updates to the S&P500 membership list

  • Obtain S&P500 membership list at the beginning of each year (Jan. 2nd)

  • Obtain S&P500 companies present on enddate


Market capitalization sorting
Market Capitalization - Sorting

  • M_Cap = # of shares outstanding x Price

  • Sort the M_Cap from lowest to highest

  • Grouping by 10, Each group has 50 companies

  • Returns are weighted by each companies in groups

Weighted

returns

10 groups by M_Cap


Market capitalization calculation
Market Capitalization - Calculation

*mcap = prc * share_outstd;

for(ii = 0; ii < count; ii++)

{

totalmcap[ii/50]+=marketcap[ii];

}

for(ii = 0; ii < count; ii++)

{

mcap_decile[ii/50]+= marketcap[ii]/50;

rtn_decile[ii/50]+= (marketcap[ii]/totalmcap[ii/50])*rtn[ii];

}

  • M_Cap = # of shares outstanding x Price

  • Sort the M_Cap from lowest to highest

  • Grouping by 10, Each goup has 50 companies

  • Hold these portfolios for 1 year

  • Compute the 1 year return by looking into the future


M_Cap - Return


Volatility
Volatility

1 year

N years

1st Jan 1962

31st Dec 2008

bgdate

enddate

rtndate

Begin Date = 2000/02/03

End Date = 2006/02/03 Return Date = 2007/12/03


Beta volatility
Beta - Volatility


Beta volatility1
Beta - Volatility


Back to the basic
Back to the basic

  • Need to figure it outwith different point of views

  • Can be proved or overturned

  • See you on round 2


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