Critically discuss the CAPM and APT, and evaluate the effectiveness of these models in the 21st Century.


Description

The framework and theories surrounding the relationship between the return on a security and its risk profile are pivotal to understanding the valuation of securities and capital budgeting decisions. We use these models to understand and measure risk and use this concept in the cost of capital studies. You are required to 1. Critically review the 3 levels of the efficient market theory (EMH) and discuss the tests used to evaluate if the market is efficient at each of the 3 levels.

2. Critically discuss the CAPM and APT, and evaluate the effectiveness of these models in the 21st Century. 3. Collect Data from 100 firms over a 12 month period from FTSE All-Share Index and analyse the data using the CAPM. 4. Compare your findings with empirical studies in literature. Note: Do use tables and graphs to present your results and demonstrate the skill to confront existing literature and include your critical analysis. Do talk about the 3 levels of EMH. (Weak, semi-strong, strong form). Also explain any theories with references and history. All calculations, excel tables showing portfolio and performance of the portfolio are to be shown in the Appendix. A guide on collecting the data for Question 3 is attached in picture 16 above. Picture 17-21 is the marking scheme, please follow the “Distinction” category for each requirement of the assignment. 

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