Capital Asset Pricing Model and Arbitrage Pricing Theory: an econometric analysis in European Union Banks

Abstract

The aim of this thesis is the study of the Capital Asset Pricing Model and the Arbitrage Pricing Theory model. More specifically, in chapter 1of this work, the reader is introduced to the basic concepts of Modern Portfolio Theory and the efficient market hypothesis, based on bibliography. After that, will follow the analysis of the CAPM and its assumptions. In chapter 2, will be examined the Arbitrage Pricing Theory and some empirical studies, in order to be presented the similarities and the differences with the CAPM. In chapter 3 an empirical analysis is done, for the capital asset pricing model before and in crisis based on the data collected. Afterwards, follows some empirical tests and examined how crisis affected the stock returns using dummy variables. In the 4 and last chapter, is examined the APT model and compared with the CAPM, in order to have accurate results. At the end of the research the econometric results are companied by more general conclusions if the research leads to expected results or not.