On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments
Control Science and Engineering
Volume 2, Issue 2, December 2018, Pages: 66-70
Received: Nov. 28, 2018;
Accepted: Jan. 2, 2019;
Published: Feb. 18, 2019
Views 757 Downloads 141
Oluwasegun Micheal Ibrahim, Department of Mathematical Sciences, African Institute for Mathematical Sciences, Kigali, Rwanda; Department of Mathematical Sciences, Adekunle Ajasin University, Akungba-Akoko, Nigeria
Dare Jayeola, Department of Mathematical Sciences, Adekunle Ajasin University, Akungba-Akoko, Nigeria
Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently, the investors’ aim is to make an optimal choice that will lead to the minimization of risk and maximization of return. To achieve this aim, standard theoretical and computational procedures must be followed. One way of doing this is to construct and analyze models capable of effectively minimizing risk, and proffer suggestions that would improve the return on investment. This paper investigates the relationship between risk and expected returns for investing in Precious metals and crude oil for five consecutive years: 2012 to 2016, using the CAPM. Two striking results were obtained from this research as control mechanisms for potential investors. First, it is revealed that the higher the value of (risk), the higher the expected returns for investing in Precious metals and crude oil. Second, the lower the risk associated with the Precious metal and crude oil’s investment, the lower the expected returns.
Oluwasegun Micheal Ibrahim,
On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments, Control Science and Engineering.
Vol. 2, No. 2,
2018, pp. 66-70.
Copyright © 2018 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/
) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
D. Jayeola and Z. Ismail (2016). Effects of correlation on diversification of Precious metals and oil. Appl. Math. Sci., 10 (27): 1343-1352.
D. Jayeola, Z. Ismail, S. F. Sufahani and D. P. Manliura (2017). Optimal method for investing on assets using Black-Litterman model. Far East Journal of Mathematical Sciences, 101 (5): 1123-1131.
D. Jayeola, Z. Ismail, and S. F. Sufahani (2017). Effects of diversification of assets in optimizing risk of the portfolio. Malaysian Journal of Fundamental and Applied Science, 13 (4): 584-587.
D. Jayeola, S. F. Sufahani, Z. Ismail, N. A. Ahmad, M. E. Nor, M. Is-Moen, and N. Maselan (2018). Optimal risk of computation on Precious metal’s assets diversification. Int. J. of Eng. & Tech., 7 (2): 526-5287.
O. M. Ibrahim (2012). Effect of CAPM on risk and returns in portfolio management. B. Sc. Thesis: Adekunle Ajasin University, Akungba-Akoko, Nigeria, page: 1-100.
W. F. Sharpe (1964). Capital asset price: A theory of market equilibrium under the condition of risk. J. of Finance, 19 (3): 425-442.
H. Markowitz (1952). Portfolio selection. J. Finance, 7 (1): 77-91.
H. Markowitz (1959). Portfolio selection: efficient diversification of investment. John Wiley and Sons, Inc., New York.
J. Burton (1998). Revisiting the capital asset pricing model. Reprinted with permission from Dow Jones Asset Manager, pp 20-28.
W. F. Sharpe (1970). Portfolio theory and capital markets. McGraw Hill.
J. Lintner (1965). The valuation of risk asset and the selection of risky investment in a stock portfolio and capital budgets. Review of Economics and Statistics, 47 (1): 13-37.
E. Fama and R. French (2004). The capital asset pricing model: theory and evidence. J. Economics Perspectives, 18 (3): 25-46.
M. Rossi (2016). The capital asset pricing model: a critical literature review. Global Business and Economics Review, 18 (5): 604-617.
B. Graham, L. F. Dodd (1934). Security analysis: the classic. McGraw Hill Professional.
M. Friedman and L. J. Savage (1984), The utility analysis of choices involving risk, Journal of Political Economy, 56: 279-304.
J. Tobin (1958). Liquidity preference as behavior toward risk. Review of Economic Studies, 25 (2), 65-86.
W. F. Sharpe (1963). A simplified model for portfolio analysis. Inst. Oper. Res. Manag. Sci., 9 (2): 277-293.
N. Amenc and V. L. Sourd (2003). Portfolio theory and performance analysis. John Wiley & Sons Ltd, England.
E. J. Elton, M. J. Gruber, S. J. Brown and W. N. Goetzmann (2014). Modern portfolio theory and investment analysis. 9th edition John Wiley & Sons, Inc.
G. O. Haruna (2017). CAPM: Theoretical formulation, empirical evidence, and interpretation. Master’s thesis: Masaryk University, Czech Republic, page: 1- 87.
A. Olowe (2006). Portfolio theory and capital market analysis. Nigeria.
H. B. Mayo (2006). Investment: An Introduction. 9th edition Cengage Learning.
V. Horne (2006). Fundaments of financial management. 12th edition, Prentice Hall Publisher Ltd.
H. Markowitz (1987). Mean-Variance analysis and portfolio choice in capital. John Wiley and Sons, Inc., New York.
Gillisie (1999). Modern portfolio theory. CFA.