The Dichotomous Asset Pricing Model Essay Example

specifically the FTSE100 index, is expected to demonstrate a higher predictive power of the DAPM compared to both BCAPM and CAPM. Moreover, this predictive power is anticipated to increase as the frequency of the data (monthly, weekly, daily) and the separation of the dataset into bull and bear periods are considered. The sample comprises 55 individual stocks from the FTSE100 over a continuous 20-year period, with rates of return obtained from DataStream. The risk-free rate used is the three months UK Treasury Bill, while the market return is based on FTSE100's rate of return. The research period spans from April 1988 to April 2008 (20 years). The analysis utilizes the two-pass regression method on both the upper- and lower-market segments.

Time series regression. The excess returns of each stock are regressed on the market excess return to obtain an estimated value, while forcing the intercept to be 0. The same significance tests were conducted for this second regression to determine if hypotheses H3 and H4 can be rejected. To ensure refinement and increased accuracy, the analysis was performed at different levels: daily, weekly, and monthly for all 20 years, as well as separately for bullish and bearish periods.

Research results 5. 1 DAPM To test hypothesis 1, we initially examined the average alpha of each of the 55 stocks.