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International Capital Asset Pricing Model in the Baltics and Poland

Sandvall, Anton LU and Håkansson, Niklas LU (2012) NEKH01 20121
Department of Economics
Abstract
Title: International Capital Asset Pricing Model in the Baltics and Poland - Is ICAPM a realistic model?

Seminar date: 2012-03-23

Course: NekH01, Degree Project Undergraduate level, Financial Economic, Undergraduate level, 15 Credits (ECTS)

Authors: Niklas Håkansson & Anton Sandvall

Advisor: Frederik Lundtofte

Key words : ICAPM, Foreign exchange rate premium, Ordinary least squares, Frontier markets, Emerging markets.

Purpose: To examine whether the International Capital Asset Pricing model is a realistic model when examining market returns in Estonia, Latvia, Lithuania and Poland during 1st January 2000 to 31st December 2011.

Methodology: The model has three types variable input; return, risk free interest rate,... (More)
Title: International Capital Asset Pricing Model in the Baltics and Poland - Is ICAPM a realistic model?

Seminar date: 2012-03-23

Course: NekH01, Degree Project Undergraduate level, Financial Economic, Undergraduate level, 15 Credits (ECTS)

Authors: Niklas Håkansson & Anton Sandvall

Advisor: Frederik Lundtofte

Key words : ICAPM, Foreign exchange rate premium, Ordinary least squares, Frontier markets, Emerging markets.

Purpose: To examine whether the International Capital Asset Pricing model is a realistic model when examining market returns in Estonia, Latvia, Lithuania and Poland during 1st January 2000 to 31st December 2011.

Methodology: The model has three types variable input; return, risk free interest rate, exchange rate risk. The data is processed, econometrically tested and alternatively corrected to fulfil the Gauss-Markov assumptions. An Ordinary Least Squares regression is performed in three time periods twelve, eight and four years. This regression determines the relation between our reference countries the world market and exchange rate premiums. The different time periods are analyzed separately to determine the past market environment.

Results: The corrected regression results show that the world market risk premium expressed in domestic currency and each market's foreign currency exchange rate relative to USD are the only explanatory variables significantly different from zero for all markets during every time period.

Conclusion: International capital asset pricing model is not sufficient in order to determine the risk and return in the Baltic markets during the period. However, the model shows adequate results regarding the Polish market. Despite the model’s lack of explanatory power, the results are improved in each time period. (Less)
Please use this url to cite or link to this publication:
author
Sandvall, Anton LU and Håkansson, Niklas LU
supervisor
organization
alternative title
Is ICAPM a realistic model?
course
NEKH01 20121
year
type
M2 - Bachelor Degree
subject
keywords
Emerging markets, Ordinary least squares, Frontier markets, Foreign exchange rate premium, ICAPM
language
English
id
2440625
date added to LUP
2012-04-18 09:08:37
date last changed
2012-04-18 09:08:37
@misc{2440625,
  abstract     = {Title: International Capital Asset Pricing Model in the Baltics and Poland - Is ICAPM a realistic model?

Seminar date: 2012-03-23

Course: NekH01, Degree Project Undergraduate level, Financial Economic, Undergraduate level, 15 Credits (ECTS)

Authors: Niklas Håkansson & Anton Sandvall

Advisor: Frederik Lundtofte

Key words	: ICAPM, Foreign exchange rate premium, Ordinary least squares, Frontier markets, Emerging markets.

Purpose: To examine whether the International Capital Asset Pricing model is a realistic model when examining market returns in Estonia, Latvia, Lithuania and Poland during 1st January 2000 to 31st December 2011.

Methodology: The model has three types variable input; return, risk free interest rate, exchange rate risk. The data is processed, econometrically tested and alternatively corrected to fulfil the Gauss-Markov assumptions. An Ordinary Least Squares regression is performed in three time periods twelve, eight and four years. This regression 		determines the relation between our reference countries the world market and exchange rate premiums. The different time periods are analyzed separately to determine the past market environment.

Results: The corrected regression results show that the world market risk premium expressed in domestic currency and each market's foreign currency exchange rate relative to USD are the only explanatory variables significantly different from zero for all markets during every time period. 

Conclusion: International capital asset pricing model is not sufficient in order 	to determine the risk and return in the Baltic markets during the 	period. However, the model shows adequate results regarding the Polish market. Despite the model’s lack of explanatory power, the results are improved in each time period.},
  author       = {Sandvall, Anton and Håkansson, Niklas},
  keyword      = {Emerging markets,Ordinary least squares,Frontier markets,Foreign exchange rate premium,ICAPM},
  language     = {eng},
  note         = {Student Paper},
  title        = {International Capital Asset Pricing Model in the Baltics and Poland},
  year         = {2012},
}