Risk, return, and market efficiency.

Articles:

1. Extending the capital asset pricing model: the reward beta approach.

2. Market efficiency, time-varying volatility, and the asymmetric effect in Amman stock exchange.

The reason selesct this article:

To know deeper market efficiency, time-varying volatility and asymmetric effect in the ASE.

Components of Comparison	Article from CRP	Article from Student
Title	Extending the capital asset pricing model: the reward beta approach.	Market efficiency, time-varying volatility, and the asymmetric effect in Amman stock exchange.
Topic	Risk, return, and market efficiency.	Risk, return, and market efficiency.
Theory used by article	Fama and French (2004): The CAPMS’s empirical problems invalidate most of its current applications. Bornholt (2006): Extends these case by deriving a board class of mean risk asset pricing models that includes the CPAM as a special case. Fama and French (1993): Typically show increasing average excess returns and decreasing CPAM betas as book to market equity increases. Fama and French (1992,1993,1995,1996): Argue that if stocks are priced rationally, then size and book-to-market equity must proxy for underlying risk factors.	Fama (1965): Stock prices exhibit fatter tails than a normal distribution. Engle (1982): The variability of the dependent variable changes systematically over time. Black (1976): Stock returns are negatively correlated with changes in return volatility. The volatility tends to rise in response to “bad news” and to fall in response to “good news”. Bekaert et al. (1998): Majority of emerging markets have positive skewness, excess kurtosis, and non-parametric distribution. Lewis et al. (1992): The existence of asymmetric effect may give wrong estimate of the risk-return relationship if GARCH-M is used.
Hypothesis of research	Reward beta approach performs well empirically and is based on asset pricing theory.	Bad and good news have a symmetric effect on stock volatility.
Variables used in research	Monthly portfolio return, market returns, Fama-French factor returns, and risk-free returns.	Stock return, market efficiency, time-varying risk-return, stock volatility, and the leverage.
Method of analysis	CAPM, Fama-French three factor model, and reward beta approach.	The Box-Jenkins, the exponential generalized autogressive conditional heteroscedesticity (EGARCH), treshold autogressive conditional heteroscedesticity.
Result of the analysis	The reward Beta approach How effective these estimates will be depends on whether or not stocks in the same portfolio do have similar risk. If we accept risk based explanation of these two effects, then portfolio formed on size and book-to-market equity are composed of stock with similar risk, and so are amenable to the portfolio method of beta estimation. Empirical evaluation The reward beta model augmented with the size and book-to-market factor sensitivities. There is nothing to be gained by augmenting the reward beta model with these factor sensitivities. Robustness The poor performance of the CAPM in explaining the cross-section of average returns just adds to the already strong empirical evidence against the CAPM. The reward beta approach might give better result than those provided by estimating more-specialized models of expected returns.	The univariate statistics show negative skewness, excess kurtosis, and deviation from normality for the ASE index. It shows that stock return follows an ARMA stochastic process with significant serial correlation, implying stock market inefficieny and significant positive relationship between equity return and risk in the ASE, which is consistent with the portfolio theory. The EGARCH suggests the existence of the asymmetric effect.