Abstract
The study discusses empirical evidence on the explanatory power for cement manufacturing industries of the Dhaka Stock Exchange in light of Capital Asset Pricing Model (CAPM) and the Fama French three-factor model. For calculating the market return, both DSEX and DS30 indexes have been used. The study revealed that the Fama French three-factor model has better explanatory power compared to the CAPM model in the Dhaka Stock Exchange. Moreover, the size risk premium has a significant influence in explaining the expected return for cement industries of the Dhaka Stock Exchange for both DSEX and DS30. On the other hand, the value risk premium has significant power in explaining the expected return for cement industries in the Dhaka Stock Exchange.
Highlights
Dhaka Stock Exchange in light of Capital Asset Pricing Model the 1980s, several authors questioned the validity of the (CAPM) and the Fama French three-factor model
The p-value is 0.62, so under 0.01 confidence level, the null hypothesis is rejected that market risk premium has no significant impact on the cross-sectional stock market returns
This paper aims to analyze excess return on the portfolio by both the CAPM model and the Fama French three-factor model and describe the effectiveness of both these models
Summary
Dhaka Stock Exchange in light of Capital Asset Pricing Model the 1980s, several authors questioned the validity of the (CAPM) and the Fama French three-factor model. Size risk premium has a significant influence in explaining the added extra factors in CAPM, such as size (market expected return for cement industries of the Dhaka Stock capitalization) and book to market ratio. The factors undoubtedly increased the validity and precision value risk premium has significant power in explaining the of the model in explaining the associated risk and return expected return for cement industries in the Dhaka Stock Exchange. Introduction factor, SMB (the difference between the return of small size and large size stocks), HML
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