《ECA5333 term paper》.pdf

Comparison of extensions of CAPM model in analyzing HK and US stock markets NATIONAL UNIVERSITY OF SINGAPORE ECA5333 FINANCIAL MARKETS PORTFOLIO MANANGEMENT A0103238R CAO RUOWEI A0104353U DUAN SHIQI A0104332A LIU LILI A0104323Y XIAO YUN A0047202W XU YITING A0103237U YE YE ABSTRACT Traditional CAPM model has many assumptions that will be violated in analyzing real stock markets. People are keeping trying improving the model to allow such violations and being able to imply CAPM model in more common circumstances. In this paper we will introduce conditional CAPM model and CAPM model with GARCH type variance models to analyze stock returns from HK and US market. We will compare the performance and estimations of those models as well as the difference of characteristics in different markets. ii TABLE OF CONTENTS Table of contents iii List of tables iv INTRODUCTION 1 Chapter 1: Literiture review 3 Unconditional and Conditional CAPM model CAPM-GARCH model Characteristics of stock returns to be concerned GARCH type models used in this paper Chapter 2: Data Source 9 Chapter 3: Methodology 11 CAPM models CAPM-GARCH model Estimating GARCH(1,1) GJR and EGARcH model GARCH-X model DCC-GARCH model Estimating DCC(1,1) Chapter 4: Results22 Overall output of estimations Check volatility persistence and leverage effect Compare models in estimating beta Chapter 5: Conclusion 33 Acknowledgement Bibliography Appendix ii