A Test of Asset Pricing Model: Developing

Country (Bangladesh) perspective

Submitted To:

Mr. Mohammed Sawkat Hossain

Assistant Professor & Course teacher
FNB 501: QTF

Submitted by:

Name of the members

Lamia Nuzhat Shashi

Touhida Tahamin Shampa

Rajesh Paul
Mohsi Nihad Mosabbir Ornab
Md. Shariar-Al-Arman
M.A. Naim
Md. Rafiur Rahman

438
439

S. M. Kaiser Ahmed
Md. Shuaib Shahriar Rusho

456
457

MBA Program
Batch: 02

September 14,
2015

Student ID.
422
430

Department of Finance & Banking

Jahangirnagar University, Savar, Dhaka

440
444
446

Abstract:
With the advancement of technology the world is changing every day and to cope up with the
changing environment we have to change our thinking, life style, behavioural pattern etc. and in case
of financial modelling the same thing also applicable new models are developed to eliminate the
limitations of old one. Over the last decades spontaneous and development which come under the
label of Arbitrage Pricing Model (APT), following the development of Capital Asset Pricing Model
(CAPM) model (Sharpe, 1964 Lintner, 1965) is to develop an accurate estimation model for
expected return. The asset pricing theory is spontaneously developing over several decades. We can
show a developing trend starting from Efficient Frontier and end with FF3 & other multifactor
model.
Efficient Frontier
CML
SML
CAPM
APT
FF3 & Others
The main purpose of our academic coursework is to test the CAPM model and APT model on given
secondary data and experience with hypothesis testing which makes selected models whether fits or
not for asset pricing. Using samples of monthly data (January 2008- December 2014), regression
model has developed to review the CAPM and APT model. The findings show that there are slight
differences between CAPM and APT. Two basic assumptions of APT are efficient markets
information and diversified investment. When portfolios investments are diversified this means
Market Risk Exposure includes most of micro-macroeconomics factors effects. But using APT have
better explanatory power (R2 and Adjusted R2) than CAPM which makes APT model more attractive
to the scholars to suggest use of APT in estimation of expected return. And if we incorporate more
and more independent variable the value of R2 and Adjusted R2 will change and the APT model will
get better explanatory power than before. And FTSE Market Excess Return makes the most
important factors apart from other small affecting factors in most researches. But scholars find that
accepting APT is better than CAPM but it is not error-free to estimate expected return in all
condition. As assumptions makes it difficult to predict actually in the markets. However, FF3 Model
(Fama and French, 1992) has developed further supportive model but in the end like all of the
scholars, it is expected that missing information (Aggelidis and Mandotinos, 2007) will further
improve through development and modification of arbitrage pricing model for the demand of the
time.

Introduction:
As the course work is based on CAPM and APT model testing so we should have a better
understanding of these models. The Capital Asset Pricing Model (CAPM) is widely accepted as an
appropriate technique for evaluating financial assets. It is used to construct portfolios, measure the
performance of investment managers, develop project screening rates for capital budgeting, and
value companies. In case of CAPM the market is considered as a single risk factor and CAPM
doesnt consider other macro economics factor which is the major limitations of CAPM and to
eliminate this limitation the APT model arrives which incorporates many other factors. The
Arbitrage Pricing Theory (APT)(S. A. Ross, 1976) which offers an alternative explanation of the
relationship between risk and return including Macro and Micro-economic factors, while CAPM has
the limitation especially in the emerging markets where the perfect market assumption do not apply,
are only superficially mentioned.
CAPM, APT and FF3 (modified theory of CAPM by using additional two Fama and French
Factors) models are applied for constructing portfolios, measuring the performance of
investment managers, developing project screening rates for capital budgeting, valuation of
companies, determining cost of capital and so forth. Therefore, asset pricing model has
definitely got a wide range of significant and practical implications as a research based
current issue especially in the domain of finance and investment. As APT model adjusted risk
factors and other micro and macro economics variables so we can say that this will provide a
better result than CAPM.

Objectives:

The main objective of this course work is to test the CAPM & APT model to calculate the
risk return relationship of TESCO share price
How we can use the CAPM and APT model in asset pricing and investment decision
Use of CAPM and APT model to estimate expected returns which depends on various
dependent factors including Market Index, Inflation and Retail Sales
Different statistical measurement and their interpretation also done in the course work.
Comparison between CAPM and APT Model is also included in the objective to realize how
these two models differ to give most predictable solution of return.

Literatures Review:
As we consider CAPM and APT model for our test there are thousands of literature are available on
this regard. After development of CAPM as a model of predicting assets return from the market by
Sharpe (1964) and Lintner (1965), in the introductory period this model was best in the world to
predict returns on investment. But for the time-being differences limitations occurred for which new
Asset Pricing Theory, which is developed by Ross (1976) is known as APT Model (or Arbitrage
Pricing Theory). And also CAPM model is expanded by FF3 model by Fama and French (1992,
1993, and 1996) by adding two new factors with the existing market index for more fitted model in
predicting the returns.
CAPM theoretically suggests that a security could be added to a portfolio, based only on its
systematic risk or beta. Fact is that the beta is only priced by the market because all non-systematic
risk is eliminated by diversification. CAPM basic equation is:
( ) = + [( ) ]
Where subscript i refers to individual price; E(ri) is expected return on ith security; (rf) is the return on
risk-free asset; E(Rm) is expected return on market portfolio and i is the measure of risk or
definition of market sensitivity.

An application of Arbitrage Pricing Theory on KSE-100 Index; A study from Pakistan (2000-2005)
by Anam Gul and Naeemullah Khan published in IOSR Journal of Business and Management
(IOSR-JBM) e-ISSN: 2278-487X. Volume 7, Issue 6 (Jan. - Feb. 2013), PP 78-84.In their research
paper they state that- Arbitrage Pricing Theory takes into account more influencing factors other than
the simple systematic risk, as defined in CAPM. In this study, we aim to evaluate stock returns using
Arbitrage Pricing Model considering four macroeconomic factors i.e. Money supply, Interest Rate,
Industrial Production and Foreign Exchange Rate. The prediction of stock returns is done by taking
values of stocks of 37 companies from KSE 100 index on monthly intervals for the period 20002005. The results that came out for this study proved that APT does not prove to be effective in
predicting stock prices in Pakistan.
(M.H.Ebrahimi Sarvolia , A.saleh Ardestani , J.Hajibozorgi , H.Ahmadinia, 2010) did research on
portfolio management in an Investment Company in Tehran stock exchange (TSE) using CAPM,
APT, Systematic and Unsystematic Risk indicators. They examined 12 firms since 21 March 2005 to
20 March 2009, selected from Tehran stock exchange and the results suggested that systematic &
unsystematic risk, CAPM & APT should be observed all together in performing evaluation
procedure of investment companys performances.
Another study was conducted in Australia (Gaoxiang Wang, 2008) in which he studied that whether
the macroeconomic variables defined through Arbitrage Pricing Theory (APT) can explain the
returns on the stock indexes in Australia. This research was based on the returns of stocks listed on
the Australian Stock Exchange (ASX) during the period from 31 March 2000 to 31 December 2007.
The research concluded that industry indices' returns can only be explained by three to five of the
thirteen macroeconomic variables selected in the research. Empirical results suggest that
macroeconomic variables, used in an APT framework, can explain consumer discretionary, energy,
financial, IT, and materials, price index returns, but cannot explain other index returns. Generally,
APT is a desirable model in examining the ASX200, as it explains half of the industry indices'
returns.
Another important study was conducted in Indonesia (Erie Febrian, Aldrin Herwany, January 2010)
in which the researchers wanted to investigate the ability of CAPM and APT in explaining the
additional returns of portfolio of stocks traded in Jakarta Stock Exchange (JKSE). They used data
from three important economic eras i.e. pre-crisis period (1992-1997), crisis period (1997-2001), and
post-crisis period (2001-2007). The results came out in the favour of APT as it proved that Beta is
not the only factor that can explain the portfolios additional returns. APT has proven to be right in
explaining the portfolio excess returns in the periods in which they observed i.e. they found out that
excess return averages are found to be consistently negative. They also found out that risk-premiums
vary over the observation periods in which the study was conducted.
Models like APT for more factors which affect returns. But in 2007, Aggelidis and Manditinos found
that APT is better than CAPM in Athens Stock Exchange but APT does not explain the overall
variance properly, maybe there is some missing information and that is why APT fails to explain
fully the returns covariance and means returns. There can be several possible explanations (Cheng,
1995). First, risk and expected return may not be stationary as it is assumed not to change during the
period; secondly, APT pricing relationship could hold only in some months of the year, and there is
evidence of a January effect on the capability of the APT to explain the return-risk-relationship
(Gultekin and Gultekin, 1987); and thirdly, there is a possibility of non-linear pricing relationships.

In the end, it is recommended that higher-order factor models would provide more accurate
predictions.
Similar problems arise in (Huberman and Wang, 2005; Aggelidis and Manditinos, 2007) in
Burmeister and McElory (1988) article where January effects also found, rejection of CAPM in favor
of the APT; however, it cannot reject the APT restrictions on the linear factor model.

Methodology and Data Analysis:

The main purpose of this report is to assess the role and practical implementation of CAPM and APT
model as the mechanism for investment strategy. To serve the purpose the work has mainly
emphasised on quantitative analysis. In testing the models, the time series (historical) data have been
considered where the values of one or more variables are observed at different points in time. Data
has already been given and the process used in the research is the linear regression line.

The Capital Asset Pricing Model (CAPM):

The Asset Pricing Model is based on CAPM (Sharpe 1964, Linter 1965). CAPM states that it is only
degree of systematic risk as expressed by beta ( ) that will determine the degree of returns for
diversified portfolio. When we should no longer rely on /SD at portfolio (as per Marketing 1954,
Tofin 1959), CAPM does not consider Macro/Micro Factor, CAPM consider the market index is the
only risk as single risk factor. Basic CAPM equation as follows:
( ) = + ( )
In the basic model of CAPM can be measured by the formula:
=

(,)

Also it can be measured by the regression line and here we calculate the Beta by regression line
between Given TESCO share Excess Return and FTSE Market Index.

Analysis and interpretations:

Annual Return & Excess Return Data:
Calculated Annual Return and Excess Return for TESCO share and FTSE market index table is
given below based on these two formulas:
Annual Rate of Return = (Pt Pt 1) / Pt 1 *100
Where,
Pt
= Current Price
Pt 1 = Beginning Price
Excess Rate of Return

= Annual Return (%) Risk-free Return (%)

= Rp - Rf (Treasury Bills Rate)

Regression model (Excel):

As in the early we stated that basic model of CAPM: ( ) = + ( ) where the p
can be measured by Regression model between TESCO Share Excess Return and FTSE Market
Index Excess Return (Data from Annual & Excess Return Table 01). Regression Model will be:
= + 1 1 +
[Where, = alpha or intercept between two data set, 1 is the coefficient between TESCO Excess
Return and FTSE Market Index Excess Return; and error terms]
As per Regression model for CAPM, it has been estimated from the Excel Output:

TESCO excess return = -1.202 + 1.386*FTSE excess return +.

o R = .943a;
o R Square (R2) = .890;
o Adjusted R Square (R2) = .888

Sample Interpretations:
From output on dependent variable TESCO excess return, we can interpret the result as:
If FTSE excess return goes up by $1 TESCO share will also go up by $1.386.

Alpha TESCO:
From SPSS output we have got = - 1.202 which is the constant or intercept value between TESCO
Share Excess Return and FTSE Market Index Excess Return. But this is inclusive because of P-value
and t-value of the result, because:

As P-value of Alpha is .230 which is higher than 0.05 (at 95% interval) which mean it is
insignificant.
t-value of Alpha is -1.210 which is lower than 2. As t < 2 then it is inclusive with TESCO
Share Excess Return.

B TESCO (Beta):
There is only one beta result as CAPM model only consider the market index as market risk, no other
Macro or Micro factors. Beta represent degree of systematic risk. Beta for TESCO share is:
= 1.386
P-value of is 0.00 which lower than .05 so value is significant.
t-value of is 23.778 which higher than 2 (t > 2) which indicates there is relation between
TESCO Excess return and FTSE Market Index Excess return.

R Squared:
R Squared (R2) is an measure of
Overall goodness of fit of the model.
Explanatory power of the model indicating how closely the TESCO excess return is
associated with Market, Inflation and Retail Sales.
It represents whether the model fits the real data set
R2 = 1 represents linearly fits the data set

Here, R square (R2) =.890 which indicates that 89% of the variability in TESCO returns is
explained by explanatory variable Market Index (FTSE). R2 shows very good explanatory
power and linearly fits data set.

Correlation coefficient:
Correlation coefficient or Multiple Regression which is denoted by R refers to the degree of
relationship whose value range is 0 to +1. Near to 1 means there is a high degree of relationship
between variables. From the SPSS output, we get
R = 0. 943a
This result shows high degree of relationship between FTSE market Index and TESCO Share excess
return variables.

The Arbitrage Pricing Theory (APT):

Arbitrage Pricing theory is proposed alternative in predicting require rate of return in spite of CAPM
in stock market. It is also the expansion of CAPM beta where CAPM consider only one beta (Stock
to Market Index), however APT consider multi-factor beta to determine the required rate of return
such as Market Index, Inflation, Retail Sales, Central Bank Rate etc. APT or Arbitrage Pricing theory
works through regression line where dependent variable expressed as of independent variables beta.
The regression equation of APT by most scholars is:
= + 1 1 + 2 2 + 3 3 + + +
Where,
Y = required rate of return for individual stock.
= incept between dependent and independent variables
1, 2, 2 n are the beta for different factors regarding returns
X1, X2 Xn is the individual stock which affect by beta from independent variables.
is the independent error terms.

SPSS Output:
As per multi-factor asset pricing model using Arbitrage Pricing Theory (APT), it has been estimated
from the SPSS Output:
TESCO excess return = - 4.512 + 1.343*FTSE excess return - .070*Inflation Rate + 1.026
*Retails Sales Rate +.

R =.946a;
R Square (R2) = .895;
Adjusted R Square (R2) = .891

Sample Interpretations:
From the SPSS output on dependent variable TESCO excess return, we can interpret the result as:
If FTSE excess return goes up by $1 TESCO share will also go up by $1.343 by holding
Inflation Rate and Retails Sales Rate constant.

Holding FTSE excess return and Retails Sales Rate constant, if Inflation rate goes up by $1
TESCO share will go down by 7 pence.
Holding FTSE excess return and Inflation rate unchanged, if retail sales rate goes by $1
TESCO share price will all go up by $1.026

Hypothesis Testing:
Hypothesis Testing is important for the reasons below:
Significance testing for accepting a result of a model based on a sample.
To infer the result of an operation based on sample.
Procedure used to accept/reject the null hypothesis or alternative hypothesis
Whether the variable support the model scientifically or not.
In the model i = + 1x1 + 2x2 + 3x2 + - the collective name for , 1, 2, 3 are the
Coefficients (or parameters). Testing of the results from these parameters is included in Hypothesis
testing. In every test, we have two hypothesis
H0 = null Hypothesis and H1 = alternative hypothesis
Where it is expected to have the null hypothesis rejected and alternative hypothesis is accepted
through different hypothesis testing.

t-statistic (or t-ratio):

In order to carry out the hypothesis test we need to consider the estimated coefficient in relation to
the size of its associated standard error.
In t-statistic (or t-ration) hypothesis ratio if the result is t 2 (equal or higher than 2) than it is
assumed that there is a relation but on the contrary there is no relation between dependent and
independent variables.
Hypothesis:

H0: = 0 (or t < 2, then there is no relation)

H1: 0 (or t 2, then there is relation between variables)

Parameters

Alpha

Hypothesis

H0: true = 0
H1: 0
-1.947< 2
H1 rejected &
H0 accepted
As intercept or
(alpha) is not
significant from
0, so it is not
meaningful

SPSS Result
Accept & Reject
Interpretation

FTSE Excess
Return
H0: true 1 = 0
H1: 1 0
21.633> 2
H0 rejected & H1
accepted
As FTSE Excess
Return is
significant from
0, so market
index has
relation with
TESCO

Inflation Rate

Retail Sales Rate

H0: true 2 = 0
H1: 2 0
-.122< 2
H1 rejected & H0
accepted
As Inflation (%)
is not significant
from 0, so
Inflation has no
relation with
TESCO

H0: true 3 = 0
H1: 2 0
1.823 < 2
H1 rejected & H0
accepted
As Retail Sales
(%) is not
significant from 0,
so it has no
relation with
TESCO

P-value:
For 95% interval if P > .05 then reject null hypothesis (H0) and P < .05 then accept the alternative
hypothesis (H1). So, hypothesis are:
H0: a = 0 (P > .05; no relation and reject)
H1: a 0 (P < .05; there is relation and accept)
Parameters
Hypothesis
SPSS Result
Accept &
Reject
Interpretation

Alpha
H0: true = 0
H1: 0
.056 > .05
H1 rejected &
H0 accepted
Intercept or
alpha value is
not meaningful

FTSE Excess
Return
H0: true 1 = 0
H1: 1 0
.000 < .05
H0 rejected & H1
accepted
FTSE Excess
Return has relation
with TESCO share
excess return

Inflation Rate

Retail Sales Rate

H0: true 2 = 0
H1: 2 0
.903 > .05

H0: true 3 = 0
H1: 2 0
.073 > .05

H1 rejected & H0
accepted
Inflation (%) has
no relation with
TESCO

H1 rejected & H0
accepted
Retail Sales (%) has
no relation with
TESCO

Testing R-square (R2) & Adjusted R-square (R2):

In the model summary of SPSS output, the R2 variable gives the proportion of variance that can be
predicted by the regression model using the data provided (Rahman, 2006). So, R2 is an measure of
Overall goodness of fit of the model.
Explanatory power of the model indicating how closely the TESCO excess return is
associated with Market, Inflation and Retail Sales.
It represents whether the model fits the real data set
R2 = 1 represents linearly fits the data set
On the other hand Adjusted R2 is the modified R2 that adjusts the degree of explanatory variables.
The relation between R2 and adjusted R2 is that if R2 increase, Adjusted R2 should be increased but
never exceeds R2.
Here, R square (R2) = .895 which indicates that 89.5% of the variability in TESCO returns is
explained by variations in explanatory variables like Market Index (FTSE), Inflation and
Retail Sales. R2 result shows very good explanatory power and linearly fits data set.

The F-test:
F-test is used to test the R2 which justify the reliability of overall model (but t-value is for individual
variable). The hypothesis for F-test are:
H0: the true R2 = 0 (no relationship)
H1: the true R2 0 (there is a relationship)
Here, significance F less than < .05 or Sig. F Change .00<.05 which means alternative hypothesis H1
is accepted and there is much evidence of overall relationship in the model.

Durbin-Watson d Test:
Auto-correlation is a concept if the variables have the tendency to follow negative or positive.
Normally error terms mean = 0 and no auto-correlation is good subject to biased negative or positive
tendency.
Auto-correlation complicates statistical analysis by altering the variance of variables, changing the
probabilities that statisticians commonly attach to making incorrect statistical decisions (Griffith
1987). The mechanism which has used for testing auto-correlation is DW d test which is calculated
from the residuals. So, Durbin-Watson (D.W) d test is:
To test the auto-correlation we have to test D.W d test
Auto-correlation complicates the statistical decisions by changing the values of variances.
Successive errors terms have the same sign error.
The Hypothesis for D.W d test are
H0: = 0 (means there is no auto-correlation)
H1: > 0 (means there is positive auto-correlation)
H1: < 0 (means there is negative auto-correlation)
Also it is important to see the result from Durbin-Watson table from which we can formulate, if
du > DW value, then H0: accepted.
dL < DW value, then H1: accepted.
dL > DW value, the test is inclusive.
In the model summary, the Durbin-Watson value is 1.046 which is higher than 0, so we could
have positive auto-correlation indicating that successive error terms have the same sign. Here,
the DW value = 1.05 less than dL = 1.525 (using DW table). Therefore, we would reject the null
hypothesis and conclude that there is positive auto-correlation.

Testing value of tolerance (multicollinearity):

The value of tolerance close to 0 indicates that a variable is almost a liner combination of the
other independent variables and such data are called multi-collinear (Norusis, 2005).
If the tolerance statistic is below .2, multicollinearity can be biasing the results (Menard,
1995). Also there is no-correlation between variables.
Strong relationship between two, then if one increases then other will increase but dependent
may not increase. So it may be biased.

For testing value of tolerance (multicollinearity) the hypothesis are:

H0: a = 0 (or H0 < .02 multicollinearity can bias the result)
H1: a 0 (or H1 > .02 multicollinearity cannot bias the result)
Since tolerance value of X variables (.863, .908, .789) all are close to 1, so H1 Hypothesis is
accepted which indicates X variables are independent and there is no room for
multicollinearity.

Conclusion:
The findings shows that there are some differences between CAPM and APT. As the assumptions of
arbitrage pricing model holds two basic assumptions of APT efficient markets information and
diversified investment. When portfolios investment are diversified this means Market Risk Exposure
includes most of micro-macroeconomics factors effects. But using APT and Extension of APT have
better explanatory power (R2 and Adjusted R2) then CAPM which makes APT model more attractive
to the scholars to suggest use of APT in estimation of expected return. But scholars find that
accepting APT is better than CAPM but it is not error-free to estimate expected return in all
condition. As assumptions makes it difficult to predict actually in the markets.

References:
Turgut Trsoy, Nil Gnsel & Husam Rjoub, 2008. Macroeconomic Factors, the APT and the
Istanbul Stock Market, International Research Journal of Finance and Economics, Issue 22, pp. 5056.
M.H.Ebrahimi Sarvolia , A.saleh Ardestani , J.Hajibozorgi , H.Ahmadinia, 2010. A Study of
Portfolio Management in Accepted Investment Company in Tehran stock exchange using of CAPM,
APT, Systematic and Unsystematic Risk Indicators", Working Paper Series
Erie Febrian, Aldrin Herwany, January 2010. CAPM and APT Validation Test Before, During, and
After Financial Crisis in Emerging Market: Evidence from Indonesia, The International Journal of
Business & Finance Research, Vol.10, No. 1.
[9] Gaoxiang Wang, 2008.Test of Macroeconomic Variables Through Arbitrage Pricing Theory in
Different Industry Indices in the
Australian Stock Market, Working Paper Series
Aggelidis, T. N. V. and Maditinos. D. (2007). Testing the relation between risk and returns using
CAPM and APT: The Case of Athens Stock Exchange (ASE).

Appendix
rate of
return(%)
32.2219
42.9810
44.7131
25.2287
19.6625
35.2375
8.5283
5.8824
17.2381
12.7188
25.1611
28.0985
23.9028
14.8935
23.1477
9.4569
18.4530
11.9330
19.5834
19.9627
18.2454
27.2817
23.2031
16.7503
18.0036
26.6303
30.6633
41.1331
25.0076
27.7223
13.9357
24.9561
30.4471
20.4998
18.9647
20.9191
18.1726
7.5177
-2.5475
2.7285
11.9481
1.1003
0.1770
-1.5413
-1.8684
1.7723
-9.5870
-14.5253

mkt return
(%)
34.8164312
27.75101362
26.57398659
18.28390167
11.83342391
13.05814555
7.156054785
7.238199483
12.03075375
8.106353247
9.246198852
9.213184862
11.61903891
11.23512867
11.86907422
7.13838755
12.78675272
14.8743421
20.642545
20.0985462
20.87098918
15.96145644
16.87865905
18.09685782
19.96296934
18.45992322
24.01524984
28.25180952
17.45625868
15.91339638
13.59410152
13.09787493
11.09516751
17.86781264
13.81952172
13.15059255
9.673013358
8.191819006
7.718277143
9.151470598
17.89087543
14.71097662
9.48114024
8.411277103
8.734805471
9.98735858
5.161145568
2.025504281

Excess
Return (Rp)
28.3919
39.0810
40.7331
21.1287
15.4725
30.8975
3.9483
1.2424
12.5181
8.0288
20.4811
23.4385
19.2228
10.2335
18.4577
4.6869
13.7530
7.2730
14.9634
15.5027
13.8354
22.8817
18.8031
12.3303
13.5736
22.2403
26.2833
36.7331
20.5876
23.2223
9.3957
20.4261
25.6971
15.6598
14.0247
15.9091
13.0926
2.2177
-7.8875
-2.6015
6.5181
-4.4497
-5.4930
-7.3113
-7.6584
-3.9177
-15.1970
-20.0253

Mkt acess
return (Rm)
30.99
23.85
22.59
14.18
7.64
8.72
2.58
2.60
7.31
3.42
4.57
4.55
6.94
6.58
7.18
2.37
8.09
10.21
16.02
15.64
16.46
11.56
12.48
13.68
15.53
14.07
19.64
23.85
13.04
11.41
9.05
8.57
6.35
13.03
8.88
8.14
4.59
2.89
2.38
3.82
12.46
9.16
3.81
2.64
2.94
4.30
-0.45
-3.47

-20.5887
-21.9558
-13.1370
-16.1539
-16.8092
-29.0510
-23.1270
-23.5400
-32.5430
-49.6175
-39.2977
-40.0608
-48.3239
-51.1159
-62.1582
-45.8430
-42.6720
-26.3433
-24.8736
-14.6876
3.0778
2.9914
9.6665
26.8650

-6.592482814
-5.792488463
-10.84792018
-7.61890571
-10.36554512
-16.11126452
-16.41502894
-12.01632888
-25.12051952
-36.78013503
-34.95658164
-32.7802913
-30.7049765
-35.95296414
-32.2126373
-29.89993355
-26.91596426
-23.93852274
-14.39468065
-12.13201845
6.084544243
7.774913106
18.11957882
19.25958113

-25.8887
-27.0758
-18.1570
-21.0339
-21.6392
-34.0010
-28.2370
-28.6200
-37.4930
-54.3575
-42.9777
-42.0508
-49.6139
-52.0059
-62.8782
-46.4430
-43.3020
-26.8733
-25.3736
-15.1276
2.6878
2.4914
9.2265
26.4750

-11.89
-10.91
-15.87
-12.50
-15.20
-21.06
-21.53
-17.10
-30.07
-41.52
-38.64
-34.77
-31.99
-36.84
-32.93
-30.50
-27.55
-24.47
-14.89
-12.57
5.69
7.27
17.68
18.87

SPSS Output CAPM

Descriptive Statistics
Mean
TESCO EXCESS RETURN
FTSE EXCESS RETURN

Std. Deviation

-.7489

25.21511

72

.3271

17.16710

72

Correlations

Pearson Correlation

TESCO EXCESS

FTSE EXCESS

RETURN

RETURN

TESCO EXCESS RETURN

1.000

.943

.943

1.000

.000

.000

TESCO EXCESS RETURN

72

72

FTSE EXCESS RETURN

72

72

FTSE EXCESS RETURN

Sig. (1-tailed)

TESCO EXCESS RETURN

FTSE EXCESS RETURN

Variables Entered/Removedb
Variables
Model

Variables Entered

FTSE EXCESS

Removed

Method
. Enter

RETURNa
a. All requested variables entered.

b. Dependent Variable: TESCO EXCESS RETURN

Model Summaryb
Change Statistics
Mode

.943a

Square
.890

Adjusted R Std. Error of

Square
.888

the Estimate
8.42871

a. Predictors: (Constant), FTSE EXCESS RETURN

b. Dependent Variable: TESCO EXCESS RETURN

R Square

Change

Change

.890

565.416

df1

df2
1

70

Sig. F

Durbin-Wats

Change

on

.000

.999

ANOVAb
Model

Sum of Squares

Regression

Mean Square

40168.918

40168.918

4973.017

70

71.043

45141.935

71

Residual
Total

df

Sig.
.000a

565.416

a. Predictors: (Constant), FTSE EXCESS RETURN

b. Dependent Variable: TESCO EXCESS RETURN

Coefficientsa
Standardiz

Model
1

Unstandardized

ed

95% Confidence

Coefficients

Coefficients

Interval for B

B
(Constant)
FTSE EXCESS
RETURN

Std. Error

Beta

Sig.

Correlations

Lower

Upper

Zero-ord

Bound

Bound

er

-1.202

.994

-1.210

.230

-3.184

.779

1.386

.058

.943 23.778

.000

1.269

1.502

a. Dependent Variable: TESCO EXCESS

RETURN

Coefficient Correlationsa
FTSE EXCESS
Model
1

RETURN
Correlations

FTSE EXCESS RETURN

1.000

Covariances

FTSE EXCESS RETURN

.003

a. Dependent Variable: TESCO EXCESS RETURN

Residuals Statisticsa
Minimum
Predicted Value

Maximum

Mean

Std. Deviation

-58.7297

41.7358

-.7489

23.78570

72

-1.60502E1

20.01771

.00000

8.36914

72

Std. Predicted Value

-2.438

1.786

.000

1.000

72

Std. Residual

-1.904

2.375

.000

.993

72

Residual

a. Dependent Variable: TESCO EXCESS RETURN

.943

Partial

.943

Part

.943

SPSS Output APT

Descriptive Statistics
Mean
AEXCRT

Std. Deviation

-.7489

25.21511

72

.3271

17.16710

72

INFR

2.7624

1.80250

72

RETSAL

3.4290

1.98014

72

FTSEXCRT

Correlations
AEXCRT
Pearson Correlation

AEXCRT

Sig. (1-tailed)

FTSEXCRT

INFR

RETSAL

1.000

.943

.076

.415

FTSEXCRT

.943

1.000

.062

.367

INFR

.076

.062

1.000

.299

RETSAL

.415

.367

.299

1.000

AEXCRT

.000

.263

.000

FTSEXCRT

.000

.302

.001

INFR

.263

.302

.005

RETSAL

.000

.001

.005

AEXCRT

72

72

72

72

FTSEXCRT

72

72

72

72

INFR

72

72

72

72

RETSAL

72

72

72

72

Variables Entered/Removedb
Variables
Model

Variables Entered

RETSAL, INFR,

Removed

Method
. Enter

FTSEXCRTa
a. All requested variables entered.
b. Dependent Variable: AEXCRT

Model Summaryb
Change Statistics

Model

.946a

R Square

Adjusted R

Std. Error of

R Square

Square

the Estimate

Change

Change

.895

.891

a. Predictors: (Constant), RETSAL, INFR,

FTSEXCRT
b. Dependent Variable: AEXCRT

8.33874

.895

193.734

df1

df2
3

68

Sig. F

Durbin-Wats

Change

on

.000

1.046

ANOVAb
Model
1

Sum of Squares
Regression

Mean Square

40413.580

13471.193

4728.355

68

69.535

45141.935

71

Residual
Total

df

Sig.
.000a

193.734

a. Predictors: (Constant), RETSAL, INFR, FTSEXCRT

b. Dependent Variable: AEXCRT

Coefficientsa
Standardiz
ed

Model
1

Unstandardized

Coefficient

95% Confidence

Coefficients

Interval for B

(Constan

Std. Error

Beta

Sig.

Collinearity
Correlations

Lower

Upper

Zero-ord

Bound

Bound

er

Statistics
Toleran

Partial

Part

ce

VIF

-4.512

2.317

-1.947

.056

-9.136

.112

1.343

.062

.914 21.633

.000

1.219

1.466

.943

.934

.849

.863

1.159

INFR

-.070

.576

-.005

-.122

.903

-1.220

1.079

.076

-.015

-.005

.908

1.101

RETSAL

1.026

.563

.081

1.823

.073

-.097

2.149

.415

.216

.072

.789

1.268

t)
FTSEXC
RT

a. Dependent Variable: AEXCRT

Collinearity Diagnosticsa
Variance Proportions

Dimensi
Model

on

Eigenvalue

2.692

1.000

.02

.00

.03

.02

1.007

1.635

.00

.83

.00

.00

.189

3.776

.09

.03

.93

.25

.112

4.896

.88

.14

.04

.72

a. Dependent Variable: AEXCRT

Condition Index

(Constant)

FTSEXCRT

INFR

RETSAL

Residuals Statisticsa
Minimum
Predicted Value

Maximum

Mean

Std. Deviation

-59.4785

40.6214

-.7489

23.85803

72

-1.59243E1

17.71840

.00000

8.16067

72

Std. Predicted Value

-2.462

1.734

.000

1.000

72

Std. Residual

-1.910

2.125

.000

.979

72

Residual

a. Dependent Variable: AEXCRT