Cross country evaluation of equity return concept: An empirical study about the relationship between actual and expected returns

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

This paper studies the concept of equity returns and sees whether there is a significant difference between the expected return which is calculated through the capital asset pricing model (CAPM) and the actual return given by the stock. For this study, 10 stocks with maximum market capitalization are taken focusing on 12 countries for our research subdivided into developed and developing countries. The period of study is 10 calendar years from 2010 to 2019. The hypothesis being whether the actual stock returns are significantly different from the expected stock return, for the same paired t-test has been deployed on 120 stocks to check the significance. Further evaluation has been done to check whether the expected return is undervalued or overvalued in reference to the actual return. To check whether there is a significant difference between the actual and expected return across the companies, panel regression was used, and then the same was done to check whether there is a significant difference between countries and also whether there is a significant difference on the basis whether the countries are developed or developing. The authors have existing research confined to particular geographies that discuss VAR models.

Keywords: CAPM, Developed and Developing Countries, Equity, Risk-Free Return, Market Return

Authors’ individual contribution: Conceptualization — K.G.; Methodology — S.O.; Formal Analysis — K.G.; Writing — Original Draft — S.O.; Writing — Review & Editing — K.G.; Resources — S.O.; Funding Acquisition — S.O. and K.G.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, F65, M41

Received: 06.04.2021
Accepted: 24.06.2021
Published online: 25.06.2021

How to cite this paper: Oswal, S., & Goel, K. (2021). Cross country evaluation of equity return concept: An empirical study about the relationship between actual and expected returns. Corporate Ownership & Control, 18(4), 30–41. https://doi.org/10.22495/cocv18i4art3