On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments

Oluwasegun Micheal Ibrahim; Dare Jayeola

doi:doi:10.11648/j.cse.20180202.11

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On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments

Oluwasegun Micheal Ibrahim, Dare Jayeola

Published in Control Science and Engineering (Volume 2, Issue 2)

Received: 28 November 2018 Accepted: 2 January 2019 Published: 18 February 2019

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Abstract

Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently, the investors’ aim is to make an optimal choice that will lead to the minimization of risk and maximization of return. To achieve this aim, standard theoretical and computational procedures must be followed. One way of doing this is to construct and analyze models capable of effectively minimizing risk, and proffer suggestions that would improve the return on investment. This paper investigates the relationship between risk and expected returns for investing in Precious metals and crude oil for five consecutive years: 2012 to 2016, using the CAPM. Two striking results were obtained from this research as control mechanisms for potential investors. First, it is revealed that the higher the value of (risk), the higher the expected returns for investing in Precious metals and crude oil. Second, the lower the risk associated with the Precious metal and crude oil’s investment, the lower the expected returns.

Published in	Control Science and Engineering (Volume 2, Issue 2)
DOI	10.11648/j.cse.20180202.11
Page(s)	66-70
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2019. Published by Science Publishing Group

Keywords

Beta Coefficient, Risk, Returns, Asset Pricing, Portfolio Management

References

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[2]	D. Jayeola, Z. Ismail, S. F. Sufahani and D. P. Manliura (2017). Optimal method for investing on assets using Black-Litterman model. Far East Journal of Mathematical Sciences, 101 (5): 1123-1131.
[3]	D. Jayeola, Z. Ismail, and S. F. Sufahani (2017). Effects of diversification of assets in optimizing risk of the portfolio. Malaysian Journal of Fundamental and Applied Science, 13 (4): 584-587.
[4]	D. Jayeola, S. F. Sufahani, Z. Ismail, N. A. Ahmad, M. E. Nor, M. Is-Moen, and N. Maselan (2018). Optimal risk of computation on Precious metal’s assets diversification. Int. J. of Eng. & Tech., 7 (2): 526-5287.
[5]	O. M. Ibrahim (2012). Effect of CAPM on risk and returns in portfolio management. B. Sc. Thesis: Adekunle Ajasin University, Akungba-Akoko, Nigeria, page: 1-100.
[6]	W. F. Sharpe (1964). Capital asset price: A theory of market equilibrium under the condition of risk. J. of Finance, 19 (3): 425-442.
[7]	H. Markowitz (1952). Portfolio selection. J. Finance, 7 (1): 77-91.
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[9]	J. Burton (1998). Revisiting the capital asset pricing model. Reprinted with permission from Dow Jones Asset Manager, pp 20-28.
[10]	W. F. Sharpe (1970). Portfolio theory and capital markets. McGraw Hill.
[11]	J. Lintner (1965). The valuation of risk asset and the selection of risky investment in a stock portfolio and capital budgets. Review of Economics and Statistics, 47 (1): 13-37.
[12]	E. Fama and R. French (2004). The capital asset pricing model: theory and evidence. J. Economics Perspectives, 18 (3): 25-46.
[13]	M. Rossi (2016). The capital asset pricing model: a critical literature review. Global Business and Economics Review, 18 (5): 604-617.
[14]	B. Graham, L. F. Dodd (1934). Security analysis: the classic. McGraw Hill Professional.
[15]	M. Friedman and L. J. Savage (1984), The utility analysis of choices involving risk, Journal of Political Economy, 56: 279-304.
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[19]	E. J. Elton, M. J. Gruber, S. J. Brown and W. N. Goetzmann (2014). Modern portfolio theory and investment analysis. 9th edition John Wiley & Sons, Inc.
[20]	G. O. Haruna (2017). CAPM: Theoretical formulation, empirical evidence, and interpretation. Master’s thesis: Masaryk University, Czech Republic, page: 1- 87.
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Oluwasegun Micheal Ibrahim, Dare Jayeola. (2019). On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments. Control Science and Engineering, 2(2), 66-70. https://doi.org/10.11648/j.cse.20180202.11

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ACS Style

Oluwasegun Micheal Ibrahim; Dare Jayeola. On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments. Control Sci. Eng. 2019, 2(2), 66-70. doi: 10.11648/j.cse.20180202.11

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AMA Style

Oluwasegun Micheal Ibrahim, Dare Jayeola. On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments. Control Sci Eng. 2019;2(2):66-70. doi: 10.11648/j.cse.20180202.11

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@article{10.11648/j.cse.20180202.11,
  author = {Oluwasegun Micheal Ibrahim and Dare Jayeola},
  title = {On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments},
  journal = {Control Science and Engineering},
  volume = {2},
  number = {2},
  pages = {66-70},
  doi = {10.11648/j.cse.20180202.11},
  url = {https://doi.org/10.11648/j.cse.20180202.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.cse.20180202.11},
  abstract = {Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently, the investors’ aim is to make an optimal choice that will lead to the minimization of risk and maximization of return. To achieve this aim, standard theoretical and computational procedures must be followed. One way of doing this is to construct and analyze models capable of effectively minimizing risk, and proffer suggestions that would improve the return on investment. This paper investigates the relationship between risk and expected returns for investing in Precious metals and crude oil for five consecutive years: 2012 to 2016, using the CAPM. Two striking results were obtained from this research as control mechanisms for potential investors. First, it is revealed that the higher the value of (risk), the higher the expected returns for investing in Precious metals and crude oil. Second, the lower the risk associated with the Precious metal and crude oil’s investment, the lower the expected returns.},
 year = {2019}
}

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TY  - JOUR
T1  - On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments
AU  - Oluwasegun Micheal Ibrahim
AU  - Dare Jayeola
Y1  - 2019/02/18
PY  - 2019
N1  - https://doi.org/10.11648/j.cse.20180202.11
DO  - 10.11648/j.cse.20180202.11
T2  - Control Science and Engineering
JF  - Control Science and Engineering
JO  - Control Science and Engineering
SP  - 66
EP  - 70
PB  - Science Publishing Group
SN  - 2994-7421
UR  - https://doi.org/10.11648/j.cse.20180202.11
AB  - Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently, the investors’ aim is to make an optimal choice that will lead to the minimization of risk and maximization of return. To achieve this aim, standard theoretical and computational procedures must be followed. One way of doing this is to construct and analyze models capable of effectively minimizing risk, and proffer suggestions that would improve the return on investment. This paper investigates the relationship between risk and expected returns for investing in Precious metals and crude oil for five consecutive years: 2012 to 2016, using the CAPM. Two striking results were obtained from this research as control mechanisms for potential investors. First, it is revealed that the higher the value of (risk), the higher the expected returns for investing in Precious metals and crude oil. Second, the lower the risk associated with the Precious metal and crude oil’s investment, the lower the expected returns.
VL  - 2
IS  - 2
ER  -

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Author Information

Oluwasegun Micheal Ibrahim

Department of Mathematical Sciences, African Institute for Mathematical Sciences, Kigali, Rwanda
Dare Jayeola

Department of Mathematical Sciences, Adekunle Ajasin University, Akungba-Akoko, Nigeria

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APA Style

Oluwasegun Micheal Ibrahim, Dare Jayeola. (2019). On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments. Control Science and Engineering, 2(2), 66-70. https://doi.org/10.11648/j.cse.20180202.11

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ACS Style

Oluwasegun Micheal Ibrahim; Dare Jayeola. On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments. Control Sci. Eng. 2019, 2(2), 66-70. doi: 10.11648/j.cse.20180202.11

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AMA Style

Oluwasegun Micheal Ibrahim, Dare Jayeola. On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments. Control Sci Eng. 2019;2(2):66-70. doi: 10.11648/j.cse.20180202.11

Copy | Download

@article{10.11648/j.cse.20180202.11,
  author = {Oluwasegun Micheal Ibrahim and Dare Jayeola},
  title = {On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments},
  journal = {Control Science and Engineering},
  volume = {2},
  number = {2},
  pages = {66-70},
  doi = {10.11648/j.cse.20180202.11},
  url = {https://doi.org/10.11648/j.cse.20180202.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.cse.20180202.11},
  abstract = {Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently, the investors’ aim is to make an optimal choice that will lead to the minimization of risk and maximization of return. To achieve this aim, standard theoretical and computational procedures must be followed. One way of doing this is to construct and analyze models capable of effectively minimizing risk, and proffer suggestions that would improve the return on investment. This paper investigates the relationship between risk and expected returns for investing in Precious metals and crude oil for five consecutive years: 2012 to 2016, using the CAPM. Two striking results were obtained from this research as control mechanisms for potential investors. First, it is revealed that the higher the value of (risk), the higher the expected returns for investing in Precious metals and crude oil. Second, the lower the risk associated with the Precious metal and crude oil’s investment, the lower the expected returns.},
 year = {2019}
}

Copy | Download

TY  - JOUR
T1  - On the Effect of Capital Asset Pricing Model on Precious Metals and Crude Oil Investments
AU  - Oluwasegun Micheal Ibrahim
AU  - Dare Jayeola
Y1  - 2019/02/18
PY  - 2019
N1  - https://doi.org/10.11648/j.cse.20180202.11
DO  - 10.11648/j.cse.20180202.11
T2  - Control Science and Engineering
JF  - Control Science and Engineering
JO  - Control Science and Engineering
SP  - 66
EP  - 70
PB  - Science Publishing Group
SN  - 2994-7421
UR  - https://doi.org/10.11648/j.cse.20180202.11
AB  - Capital asset pricing model (CAPM) is a useful technique in portfolio management theory (PMT), it is based on a class of risk; the systematic risk associated with the fluctuation of security price that cannot be diversified away. Beta (β) is the measure of the systematic risk, which has a positive correlation with the expected return. Consequently, the investors’ aim is to make an optimal choice that will lead to the minimization of risk and maximization of return. To achieve this aim, standard theoretical and computational procedures must be followed. One way of doing this is to construct and analyze models capable of effectively minimizing risk, and proffer suggestions that would improve the return on investment. This paper investigates the relationship between risk and expected returns for investing in Precious metals and crude oil for five consecutive years: 2012 to 2016, using the CAPM. Two striking results were obtained from this research as control mechanisms for potential investors. First, it is revealed that the higher the value of (risk), the higher the expected returns for investing in Precious metals and crude oil. Second, the lower the risk associated with the Precious metal and crude oil’s investment, the lower the expected returns.
VL  - 2
IS  - 2
ER  -

Copy | Download