CAPM Analysis: Why You Should Invest in E-Commerce ‘Now’

Abstract

We live in the age of constantly growing e-commerce,“If there’s one big trend in retail, Its that more and more sales are happening online” Online shopping has been growing significantly faster than any of brick and mortar stores. Online retailers are responsible to brings in approximately half a trillion dollars in the U.S. over the past years as per the data retrieved from the U.S. census bureau. (Levy, 2018) An online sales have shown shown a tremendous growth at rate of 15%-17% per year while the growth of the overall industry is just 5% , that means e-commerce industry is growing three time faster in comparison with overall industry. In this paper we will discuss about 5 large e-commerce companies in the world that present interesting investment opportunities to take the advantage of its mega-growing trend. These studies looks through the daily share prices between the year of 2009-2019 of historical data available on Yahoo finance to find out the expected return on investment. Capital Asset Pricing Model (CAPM) is applied in regulatory case to estimate the required rate of return, or a cost of equity. The outcome are based on a daily data of 5 USA e-commerce company listed in NYSE( Newyork Stock Exchange) that is Walmart(WMT), Amazon(AMZN), Bestbuy(BBY), Ebay(EBAY) and HD(HD). CAPM ensures a relatively accurate prediction of the risks involved and yield. The study would demonstrate its correlation to the modern portfolio theory. This paper had implemented the use of wilshire5000 as market proxy for more accurate result. The historical pricing of the asset, market index and the treasury constant maturity rate is used in daily basis for the 10 years that’s( French,2016).