INTERNATIONAL UNIVERSITY

VIETNAM NATIONAL UNIVERSITY

SCHOOL OF BUSINESS

Introduction Econometrics with Financial Application

FINAL PROJECT

USING EVIEWS FOR CAPITAL ASSET PRICING

MODEL (CAPM) TESTING
Lecturer: PhD. Nguyen Phuong Anh

Team Members:

Nguyen Khang An BAFNIU13002

Cao Thanh Hang BAFNIU13025

Truong Nguyen Thuy Oanh BAFNIU13071

 Ho Chi Minh City, 2016

I. TABLE OF CONTENTS
I. Table of contents...
II. Acknowledgement.......
III. Table of members contribution...
IV. Introduction..
V. Data.
VI. Methodology..
VII. Result and Interpretations
VIII. Conclusion...
IX. References...

II. ACKNOWLEDGEMENT

We would like to express my special thanks of gratitude to our lecturer Dr. Nguyen Phuong Anh
who gave us the opportunity to do this project on the topic Using Eviews for Capital Asset
 Pricing Model (CAPM). We appreciate the chance that we were provided with wholehearted
support, caring guidance, and continuous encouragement throughout the course and through
the process of making this project. This accomplishment would not have been possible without
Dr. Nguyen Phuong Anh.

II. TABLE OF MEMBERS CONTRIBUTION

Name Description % participation

Nguyen Khang An (team leader) Processing data by Eviews, writing report 100%
Cao Thanh Hang Analyze results, writing report 100%
Truong Nguyen Thuy Oanh Collect data, analyze results, writing report 100%

III. INTRODUCTION
The objective of this final project is to conduct an optimal portfolio of five stocks in order to
investigate whether CAPM can explain the returns of some companies in Construction Real
Estate Industry. Moreover, if the explaination is feasible, how its sensitivity to the market is.

All the data is based on historical data of five stocks. This reflects how stocks price is sensitive
to market changes for conducting expected return of the portfolio. We use Eviews (version 6.0)
and CAPM test for the Beta test, volatility of the stocks when compared with the market. We
collected monthly prices of not only these following stocks: Vingroup (VIC), Hung Long Joint
Stock Company (KHL), Coteccons Joint Stock Company (CTD), Nam Long Group
Corporation (NLG), Kinh Bac City Group (KBC) but also VN-Index. The data are collected
from http://www.cophieu68.com and http://investment.com

IV. DATA

The data below was collected from http://www.cophieu68.com and http://investment.com/ from
May 2013 to April 2016

The stock price in this sample is the monthly adjusted price.

Date
(YYYYMMDD) VNINDEX T-BILL CTD KBC KHL NLG VIC
20160429 598.4 6.934 174 13.8 1.9 23.4 52.5
20160331 561.2 6.868 188 12.7 2.5 22.7 47.2
20160229 559.4 6.863 153 13.1 1.8 22.6 44.1
20160129 545.2 7.037 137 11.8 1.4 23.4 47.6
20151231 579 7.052 153 13.1 1.5 22.3 45.7
20151130 573.2 7.06 148 13 1.5 22 42.8
20151030 607.4 7.062 125 14.4 1.3 20.9 45.5
20150930 562.6 7.041 98.5 12.6 1.4 20 41.7
20150831 564.8 7.002 97 12.2 1.8 19.1 41.5
20150731 621.1 6.776 86 15.9 1.9 18.5 43.1
20150630 593 6.785 76.5 15.5 2.5 18.3 43.5
20150529 569.6 6.538 79 15.8 2.9 18.8 37.6
20150427 562.4 6.493 77 15.7 2.7 18.7 38.5
20150331 551.1 6.476 70.5 16 3.4 16.9 37.2
20150227 592.6 6.433 60 16.3 3.7 17.2 39.2
20150130 576.1 6.645 60 15.7 3.7 16.6 38
20141231 545.6 7.15 57 15.9 3.9 17.2 37.8
20141128 566.6 6.893 61 16.7 3.8 16.9 38.3
20141030 600.8 6.302 61 16.1 3.6 16.8 37.7
20140930 598.8 6.66 66 15 3.9 16.6 38
20140829 636.6 8.038 62 14.3 4.4 17.7 46.3
20140731 596.1 8.426 62.5 10.5 4 16.6 37.8
 20140630 578.1 8.577 61.5 11.2 4.1 16.7 32.7
20140530 562 8.694 62 10.1 3.4 16.6 35
20140429 578 8.465 62 11.2 3.8 19 33.2
20140331 591.6 8.495 63 13 5.1 17.6 37.5
20140228 586.5 8.67 63 12.9 4.1 17.2 39.1
20140127 556.5 8.85 66 10.7 3 16.1 39.1
20131231 504.6 8.95 50.5 9.8 3 15.6 35.8
20131129 507.8 8.9 45.3 9.5 3.6 16.5 35.2
20131031 497.4 8.85 42.7 9.4 2 18.6 34.5
20130930 492.6 8.93 37.5 8.5 1.4 21.2 31.9
20130830 472.7 8.81 35 7.6 1.4 20.3 31.9
20130731 491.9 8.93 37.2 7 1.7 21.2 32.2
20130628 481.1 8.9 36.9 7.4 2.1 22.3 31.9
20130531 518.4 8.94 37.8 8.5 2.2 16.1 34.7
20130426 474.5 9.208 34.8 6.6 2.5 31.7

V. METHODOLOGY

Testing the correlation coefficient between each pair of stocks

To conduct this test, we use the software package EViews (version 6.0) as appropriate tools to
test the correlation coefficient between every two of the chosen five stocks with VN-Index. The
data is collected monthly and entered into the file name RESP, including 36 observations in
8 columns: the first one is date (YYMMDD), the next one is prices of VN-Index, the third one
is the risk-free rate of T-bill and the five last are prices of chosen stocks (CTD, KBC, KHL,
NLG, VIC)
We consider the following situation:
CAPM test:

(Rs - rf )t = i + i (Rm - rf)t + i,t (CAPM)

H0: = 0 and H1 : 0
If the p_value of the t_ratio < 0.05, reject the Null Hypotheses.
Therefore, this explains for the fact that the excess return on the market proxy
has a significant explanatory power for the excess return of stock.
Durbin-Watson test:
H0 : no autocorrelation between the error terms.
H1 : autocorrelation between the error terms
If the p_value of the t_ratio in the range from 1 to 3, we cannot reject Null
Hypotheses. There will be no autocorrelation between the error terms.
Bera-Jarque normality tests:
H0 : Follow normal distribution.
H1 : Not follow normal distribution
If the p_value of the t_ratio is larger than 0.05, we cannot reject the Null
Hypotheses. It will be follow the normal distribution.
Next, we will start conducting the test in EViews by the following steps:

1. 1. File\New\Workfile: Monthly from 2013:05 to 2016:04

Copy the data from Excel file Choose Quick Choose Empty Group (Edit Series) Paste
the data Rename the data as Excel file

2. Testing for CAPM: CTD, KBC, KHL, NLG, VIC and VN_Index
a. Generating the return for each stock
b. For CTD: Genr RCTD=100*LOG(CTD/CTD(-1))
With (-1): using one period lagged observation of the series.

- For KBC: Genr RKBC=100*LOG(KBC/KBC(-1))

With (-1): using one period lagged observation of the series.

- For KHL: Genr RKHL=100*LOG(KHL/KHL(-1))

With (-1): using one period lagged observation of the series.

- For NLG: Genr RNLG=100*LOG(NLG/NLG(-1))

With (-1): using one period lagged observation of the series.

- For VIC: Genr RVIC=100*LOG(VIC/VIC(-1))

With (-1): using one period lagged observation of the series.

- For VN_Index: Genr RINDEX=100*LOG(INDEX/INDEX(-1))

With (-1): using one period lagged observation of the series.

a. Generating the T-Bill from using annualized into using monthly data.
- For T-Bill: Genr T= T/12
b. Generating the excess return for each stock
- For VIC: Genr ERVIC= RVIC-T
- For KHL: Genr ERKHL= RKHL-T
- For NLG: Genr ERNLG= RNLG-T
- For CTD: Genr ERCTD= RCTD-T
- For KBC: Genr ERKBC= RKBC-T
- For VN- INDEX: Genr ERINDEX= RVINDEX- T
c. Plot the data
(the goal of this step mainly focuses on if the series appear to move together)
 - Object\New object => graph VN_INDEXnDXG => type: ERINDEX ERDXG
- This will appear in the graph under the name INDEXnKDC, similarly to others:
ERINDEX ERHAG (graph INDEXnHAG)
ERINDEX ERQCG (graph INDEXnQCG)

GRAPH:

28

24

20

16

12

-4

-8

-12
13M07 14M01 14M07 15M01 15M07 16M01

ERVNINDEX ERCTD
20

10

-10

-20

-30
13M07 14M01 14M07 15M01 15M07 16M01

ERVNINDEX ERVIC

40

30

20

10

-10

-20
13M07 14M01 14M07 15M01 15M07 16M01

ERVNINDEX ERNLG
 60

40

20

-20

-40
13M07 14M01 14M07 15M01 15M07 16M01

ERVNINDEX ERKHL

40

30

20

10

-10

-20

-30
13M07 14M01 14M07 15M01 15M07 16M01

ERVNINDEX ERKBC

Dependent Variable: ERCTD

Method: Least Squares
Date: 05/25/16 Time: 11:50
Sample (adjusted): 2013M05 2016M04
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

 C 3.830710 1.517909 2.523677 0.0165
ERVNINDEX 0.331997 0.313613 1.058622 0.2972

R-squared 0.031909 Mean dependent var 3.832941

Adjusted R-squared 0.003436 S.D. dependent var 9.123131
S.E. of regression 9.107443 Akaike info criterion 7.310014
Sum squared resid 2820.148 Schwarz criterion 7.397987
Log likelihood -129.5802 Hannan-Quinn criter. 7.340719
F-statistic 1.120680 Durbin-Watson stat 1.856297
Prob(F-statistic) 0.297235

Dependent Variable: ERKBC

Method: Least Squares
Date: 05/25/16 Time: 11:52
Sample (adjusted): 2013M05 2016M04
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 1.400911 1.381601 1.013977 0.3178

ERVNINDEX 1.526445 0.285450 5.347497 0.0000

R-squared 0.456832 Mean dependent var 1.411166

Adjusted R-squared 0.440856 S.D. dependent var 11.08592
S.E. of regression 8.289595 Akaike info criterion 7.121832
Sum squared resid 2336.391 Schwarz criterion 7.209805
Log likelihood -126.1930 Hannan-Quinn criter. 7.152537
F-statistic 28.59572 Durbin-Watson stat 1.920405
Prob(F-statistic) 0.000006

Dependent Variable: ERKHL

Method: Least Squares
Date: 05/25/16 Time: 11:53
Sample (adjusted): 2013M05 2016M04
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C -1.401751 3.405116 -0.411660 0.6832

ERVNINDEX 0.254036 0.703526 0.361090 0.7203

R-squared 0.003820 Mean dependent var -1.400044

Adjusted R-squared -0.025479 S.D. dependent var 20.17527
S.E. of regression 20.43068 Akaike info criterion 8.925905
Sum squared resid 14192.03 Schwarz criterion 9.013878
Log likelihood -158.6663 Hannan-Quinn criter. 8.956610
F-statistic 0.130386 Durbin-Watson stat 1.680662
Prob(F-statistic) 0.720266

Dependent Variable: ERNLG

Method: Least Squares
Date: 05/25/16 Time: 11:53
Sample (adjusted): 2013M06 2016M04
Included observations: 35 after adjustments
 Variable Coefficient Std. Error t-Statistic Prob.

C 0.394408 1.337203 0.294950 0.7699

ERVNINDEX -0.174833 0.283681 -0.616300 0.5419

R-squared 0.011379 Mean dependent var 0.433679

Adjusted R-squared -0.018579 S.D. dependent var 7.829611
S.E. of regression 7.902010 Akaike info criterion 7.027557
Sum squared resid 2060.578 Schwarz criterion 7.116434
Log likelihood -120.9822 Hannan-Quinn criter. 7.058237
F-statistic 0.379825 Durbin-Watson stat 1.684158
Prob(F-statistic) 0.541925

Dependent Variable: ERVIC

Method: Least Squares
Date: 05/25/16 Time: 11:54
Sample (adjusted): 2013M05 2016M04
Included observations: 36 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

C 0.757506 1.087587 0.696501 0.4908

ERVNINDEX 0.915909 0.224705 4.076057 0.0003

R-squared 0.328252 Mean dependent var 0.763659

Adjusted R-squared 0.308495 S.D. dependent var 7.847245
S.E. of regression 6.525517 Akaike info criterion 6.643270
Sum squared resid 1447.800 Schwarz criterion 6.731243
Log likelihood -117.5789 Hannan-Quinn criter. 6.673975
F-statistic 16.61424 Durbin-Watson stat 2.636407
Prob(F-statistic) 0.000260

CAPM1

8
Series: Residuals
7 Sample 2013M05 2016M04
Observations 36
6
Mean -3.45e-16
5 Median -1.770363
Maximum 19.80636
4 Minimum -13.07770
Std. Dev. 8.170314
3
Skewness 0.384288
Kurtosis 2.485328
2

Jarque-Bera 1.283396
1
Probability 0.526398
0
-15 -10 -5 0 5 10 15 20
 CAPM4

9
Series: Residuals
8 Sample 2013M05 2016M04
Observations 36
7

6 Mean -1.48e-16
Median 0.074530
5 Maximum 13.44890
Minimum -14.95312
4
Std. Dev. 6.431619
3 Skewness -0.132863
Kurtosis 2.812315
2
Jarque-Bera 0.158754
1 Probability 0.923692
0
-15 -10 -5 0 5 10 15

VI. RESULTS AND INPRETATION:

According to statistics, a confidence level of 95% gives a t-statistic value equal to 1.96. A
special case of the t-test occurs if we test the hypothesis in which a parameter equals zero:
Ho: Bi=0. If this hypothesis is rejected, then we conclude that the regression has a
significant value for explaining the regression; if the hypothesis is not rejected, the
regression has no significant explanatory value. According to this rule, the t-statistics is less
than 1.96. Given our hypothesis condition that the intercept is equal to zero, if the t-
statistics is higher than 1.96, our hypothesis rule does not work here, and the CAPM model
is rejected in the portfolio. Moreover, we can see the relationship between the t-statistic
values and the P values in statistics gives us an insight into the CAPM model. In this case,
in the confidence level of 5%, when the P values are higher than 0.05, then the CAPM
model does not hold in the portfolio which means we reject the null hypothesis.

Stock Beta R2 p-value t-statistic Conclusion Durbin- Bera-Jarque

coefficient Watson test test
CTD 0.331997 0.031909 0.2972 1.058622 Insignificant
KBC 1.526445 0.456832 0.0000 5.347497 Significant 1.920405 1.283396
KHL 0.254036 0.003820 0.7203 0.361090 Insignificant
NLG -0.174833 0.011379 0.5419 -0.616300 Insignificant
VIC 0.915909 0.328252 0.0003 4.076057 Significant 2.636407 0.158754
 The relations between beta and expected return measured by the linear correlation coefficient
are positive in all 5 companies chosen. The adjusted R2 vary from 0.456832 to 0.003820 which
means that the return volatility can be attributed to fluctuations in the market return by only
45.6% and 0.3%, respectively. It also explains that all the companies' stocks have their
variation in excess return fairly explained by the excess return on the market index. This
equation applies in cases where there are fairly efficient betas explaining the correlation
between market risk and return.

After conducting the test, we found that the excess return on the market proxy has a significant
explanatory power for the excess return of KBC and VIC stock. Durbin Watson stat of KBC
is 1.920405 and VIC is 2.636407, which indicate that there is no autocorrelation between the
error terms. The test of Bera-Jarque normality tests has p-value is 1.283396 for KBC and
0.158754 for VIC, so they follow the normal distribution. However, for the three other stocks
(CTD, KHL, NLG), the excess return on the market proxy has an insignificant explanatory
power for the excess return on the stocks.

VII. CONCLUSION:

This project tests the validity of CAPM model for the five typical stocks in HOSE. Our result
have little power to conclude that the whether CAPM model is supportive of the theorys basic
hypothesis that higher risk (beta) is associated with a higher level of return.

VIII. REFERENCES

BROOKS, C. (2008). Introductory: Econometrics for Finance. Cambridge, U.K.: Cambridge University
Press.

CHOUDHARY, K., & CHOUDARY, S. (2010). Testing Capital Asset Pricing Model: Empirical
Evidences from India Equity Market. Eurasian Journal of Business and Economics, 3(6), 127-
138.