The impact of political and economic events on the asset pricing model described by the
arbitrage pricing theory (APTM) was examined in order to establish if they had caused any
changes in its specification. It was concluded that the APTM is not stationary and that it must
be continuously tested before it can be used as political and economic events can change its
specification. It was also found that political events had a more direct effect on the
specification of the APTM, in that their effect is more immediate, than did economic events,
which influenced the APTM by first influencing the economic environment in which it
operated.
The conventional approach that would have evaluated important political and economic
events, case by case, to determine whether they affected the linear factor model (LFM), and
subsequently the APTM, could not be used since no correlation was found between the
pricing of a risk factor in the LFM and its subsequent pricing in the APTM. A new approach
was then followed in which a correlation with a political or economic event was sought
whenever a change was detected in the specification of the APTM. This was achieved by first
finding the best subset LFM, chosen for producing the highest adjusted R2
, month by month,
over 87 periods from 20 October1991 to 21 June 1998, using a combination of nine
prespecified risk factors (five of which were proxies for economic events and one for
political events). Multivariate analysis techniques were then used to establish which risk
factors were priced most often during the three equal subperiods into which the 87 periods
were broken up.
Using the above methodology, the researcher was able to conclude that political events
changed the specification of the APTM in late 1991. After the national elections in April
1994 it was found that the acceptance of South Africa into the world economic community
had again changed the specification of the APTM and the two most important factors were
proxies for economic events. / Business Leadership / DBL
Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:unisa/oai:uir.unisa.ac.za:10500/16107 |
Date | 05 1900 |
Creators | Stephanou, Costas Michael |
Contributors | Maritz, Marius Johannes, 1960-, Du Toit, G. S. (Gawie S.) |
Source Sets | South African National ETD Portal |
Language | English |
Detected Language | English |
Format | 1 online resource (xiii, 138 leaves) |
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