IDEAS home Printed from https://ideas.repec.org/a/ibn/ibrjnl/v11y2018i9p13-22.html
   My bibliography  Save this article

Testing a Multi-factor Capital Asset Pricing Model in the Jordanian Stock Market

Author

Listed:
  • Mohammad K. Elshqirat
  • Mohammad M. Sharifzadeh

Abstract

A valid and accurate capital asset pricing model (CAPM) may help investors and mutual funds managers in determining expected returns which may lead to increase their profits and community resources. The problem is that the traditional CAPM does not accurately predict the expected rate of return. A more accurate model is needed to help investors in determining the intrinsic price of the financial asset they want to sell or buy. The purpose of this study was to examine the validity of the single-factor CAPM and then develop and test a multifactor CAPM in the Jordanian stock market. The study was informed by the modern portfolio theory and specifically by the single-factor CAPM developed by Sharpe, Lintner, and Mossin. The research questions for the study examined the factors that may explain the variation in the expected rate of return on stocks in the Jordanian stock market and the relationship between the expected rate of return and factors of market return, company size, financial leverage, and operating leverage. A causal-comparative quantitative research design was employed to achieve the purpose of the study by testing the listed companies on the Amman stock exchange (ASE) for the period from 2000 to 2015. Data were collected from the ASE database and analyzed using the multiple regression model and t test. The results revealed that market return, company size, and financial leverage are not predictors of the expected rate of return while operating leverage is a predictor.

Suggested Citation

  • Mohammad K. Elshqirat & Mohammad M. Sharifzadeh, 2018. "Testing a Multi-factor Capital Asset Pricing Model in the Jordanian Stock Market," International Business Research, Canadian Center of Science and Education, vol. 11(9), pages 13-22, September.
    • Handle: RePEc:ibn:ibrjnl:v:11:y:2018:i:9:p:13-22
    as

    Download full text from publisher

    File URL: http://www.ccsenet.org/journal/index.php/ibr/article/download/76521/42645
    Download Restriction: no
    File URL: http://www.ccsenet.org/journal/index.php/ibr/article/view/76521
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Garyn-Tal, Sharon & Lauterbach, Beni, 2015. "The formulation of the four factor model when a considerable proportion of firms is dual-listed," Emerging Markets Review, Elsevier, vol. 24(C), pages 1-12.
    3. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Radosław Kurach, 2013. "Does Beta Explain Global Equity Market Volatility – Some Empirical Evidence," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(2), June.
    2. Shi, Yun & Cui, Xiangyu & Zhou, Xunyu, 2020. "Beta and Coskewness Pricing: Perspective from Probability Weighting," SocArXiv 5rqhv, Center for Open Science.
    3. Abugri, Benjamin A. & Dutta, Sandip, 2014. "Are we overestimating REIT idiosyncratic risk? Analysis of pricing effects and persistence," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 249-259.
    4. Shaikh, Salman, 2013. "Investment Decisions by Analysts: A Case Study of KSE," MPRA Paper 53802, University Library of Munich, Germany.
    5. Turan G. Bali & Robert F. Engle & Yi Tang, 2017. "Dynamic Conditional Beta Is Alive and Well in the Cross Section of Daily Stock Returns," Management Science, INFORMS, vol. 63(11), pages 3760-3779, November.
    6. Cakici, Nusret & Zaremba, Adam, 2022. "Salience theory and the cross-section of stock returns: International and further evidence," Journal of Financial Economics, Elsevier, vol. 146(2), pages 689-725.
    7. Michael E. Drew & Jon D. Stanford, 2003. "Retail Superannuation Management in Australia: Risk, Cost and Alpha," School of Economics and Finance Discussion Papers and Working Papers Series 126, School of Economics and Finance, Queensland University of Technology.
    8. repec:ers:journl:v:xxiv:y:2021:i:4:p:370-395 is not listed on IDEAS
    9. repec:dau:papers:123456789/2514 is not listed on IDEAS
    10. Ciciretti, Rocco & Dalò, Ambrogio & Dam, Lammertjan, 2023. "The contributions of betas versus characteristics to the ESG premium," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 104-124.
    11. Klaus Schredelseker, 2012. "Finanzkrise — Mitschuld der Theorie?," Schmalenbach Journal of Business Research, Springer, vol. 64(8), pages 833-845, December.
    12. Pritpal Singh Bhullar & Pradeep K. Gupta, 2016. "Expected and realized stock returns: Evidence from India," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 6(11), pages 270-278, November.
    13. Aynur Pala, 2014. "The Effect of Valuation Ratios, Gold Price, and Petroleum Price on Equity Returns: A Comparison of Static Panel and Quantile Regressions," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(1), pages 80-89, January.
    14. Tai, Chu-Sheng, 2003. "Are Fama-French and momentum factors really priced?," Journal of Multinational Financial Management, Elsevier, vol. 13(4-5), pages 359-384, December.
    15. Linnenluecke, Martina K. & Chen, Xiaoyan & Ling, Xin & Smith, Tom & Zhu, Yushu, 2017. "Research in finance: A review of influential publications and a research agenda," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 188-199.
    16. Arati Kale & Devendra Kale & Sriram Villupuram, 2024. "Decomposition of risk for small size and low book-to-market stocks," Journal of Asset Management, Palgrave Macmillan, vol. 25(1), pages 96-112, February.
    17. Fong, Wai Mun, 1997. "Robust beta estimation: Some empirical evidence," Review of Financial Economics, Elsevier, vol. 6(2), pages 167-186.
    18. Guobin Fan & Eric Girardin & Wong K. Wong & Yong Zeng, 2015. "The Risk of Individual Stocks’ Tail Dependence with the Market and Its Effect on Stock Returns," Discrete Dynamics in Nature and Society, Hindawi, vol. 2015, pages 1-17, November.
    19. Jorge H. del Castillo-Spíndola, 2006. "A Non-Parametric Test of the Conditional CAPM for the Mexican Economy," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 21(2), pages 275-297.
    20. Sebastian Lobe & Christian Walkshäusl, 2016. "Vice versus virtue investing around the world," Review of Managerial Science, Springer, vol. 10(2), pages 303-344, March.
    21. Kentaro Imajo & Kentaro Minami & Katsuya Ito & Kei Nakagawa, 2020. "Deep Portfolio Optimization via Distributional Prediction of Residual Factors," Papers 2012.07245, arXiv.org.
    22. Israel, Ronen & Moskowitz, Tobias J., 2013. "The role of shorting, firm size, and time on market anomalies," Journal of Financial Economics, Elsevier, vol. 108(2), pages 275-301.

    More about this item

    Keywords

    capital asset pricing model; Amman stock exchange; financial leverage; operating leverage; size; multi-factor capital asset pricing model;
    All these keywords.

    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibn:ibrjnl:v:11:y:2018:i:9:p:13-22. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Canadian Center of Science and Education (email available below). General contact details of provider: https://edirc.repec.org/data/cepflch.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.