Student Name: Kapembwa Nakazwe

Student Number: 08N0375

Supervisor: Pro Hugo Nel
H! "#SK$"!%"N "!&'#(NSH#P )"(* #N+!S*!NS #N SH'"!S
"isk$"eturn relations,ip is an important topi- in t,e .ield o. .inan-ial
e-onomi-s and most/ i. not all/ investment de-isions are made based on it0
,ere.ore it is vital t,at one understands w,at risk and return are in respe-t to
investing in se-urities0 1es-riptive statisti-s anal2sis ,as been used in t,is
resear-, and t,e data anal2sed was t,e 'll S,are #nde3/ t,e )inan-ial s,are
inde3 and t,e #ndustrial inde3 .or t,e period 455674$8040790,e .indings o.
t,e resear-, indi-ate t,e )inan-ial S,are #nde3 is t,e .irst to rea-t to market
-onditions and more or less sets t,e trend0 'dditionall2 it also ,as t,e ,ig,est
means and standard deviation indi-ating ,ig, volatilit2 -ompared to t,e
#ndustrial S,are #nde30
40 #N("1%:#(N
H! "!&'#(NSH#P ;!<!!N "#SK 'N1 "!%"N () 'SS!S #S ()
="!' #*P("'N:! #N H! )#N'N:#'& <("&1 be-ause risk and return
>reward? is ine3tri-abl2 intertwined0 #t is a -ommon belie. t,at assets t,at ,ave ,ig,
risk generate ,ig, returns w,ilst assets t,at ,ave low risk generate low returns ,en-e
investors@ base t,eir de-isions on t,is belie.0 ,ere.ore understanding risk and return
is ver2 important i. one is to make a de-ision about w,at asset to invest in and t,is
,as been assisted b2 t,e man2 t,eories t,at ,ave been developed over t,e 2ears0
,e risk$return relation was .irst e3plored b2 Harr2 *arkowitz >4558? and was
originall2 termed as t,e mean$varian-e model0 ,e t,eor2 seeks to e3plain t,e
-onstru-tion and sele-tion o. port.olios b2 risk$averse individuals t,at seek to
ma3imise t,eir return based on a given level o. risk in a spe-i.i- market w,ilst been
aware t,at risk is part and par-el o. ,ig,er rewards0 oda2 t,e mean$varian-e model
is -ommonl2 termed as t,e modern port.olio t,eor2 and it ,as been t,e basis o. ot,er
developing t,eories t,at ,ave .ollowed >Howells and ;ain/ 8008: 859?0 ,e -apital
asset pri-ing model >:'P*? was introdu-ed b2 Aa-k re2nor >4564/ 4568?/ <illiam
S,arpe >4569?/ Ao,n &intner >4565? and Aan *ossin >4566? independentl2 t,at built
on t,e earlier work o. Harr2 *arkowitz on diversi.i-ation and t,e modern port.olio
t,eor2 >&ev,ari and &ev2/ 4577:58?0
,e :'P* is based on t,e assumption t,at returns .or investors in based on
t,e time value o. mone2 and risk0 ,ere.ore e3pe-ted return is t,e addition o. risk$
.ree rate o. t,e se-urit2 and t,e risk premium >w,i-, represents t,e reBuired return?
and investments will be made i. t,e reBuired return is less t,an e3pe-ted return0
,erea.ter obin@s B model was later developed b2 Aames obin >4565? and t,en
.ollowed b2 t,e 'rbitrage pri-ing model b2 t,e e-onomist Step,en "oss in >4576?
>Howells and ;ain/ 8008: 860?0 ,e obin@s B seeks to e3plain t,e market value o. a
-ompan2 in respe-t to t,e repla-ement -ost o. t,e -ompan2@s assets w,ilst t,e :'P*
is based on t,e assumption t,at returns .or investors in based on t,e time value o.
mone2 and risk0 ,e e3pe-ted return is t,e addition o. risk$.ree rate o. t,e se-urit2
and t,e risk premium >w,i-, represents t,e reBuired return? and investments will be
made i. t,e reBuired return is less t,an e3pe-ted return0
,e above various t,eories ,ave assisted persons interested in investing to
understand t,e relations,ip between risk and return among di..erent assets0 ,e
resear-, arti-le t,ere.ore provides .urt,er insig,t into t,is relations,ip b2 ta-kling t,e
Buestion/ Cw,at is t,e risk$return relations,ip .rom investments in bonds and
s,aresD0E ,is is important be-ause investors are .a-ed wit, -omple3 de-isions w,en
it -omes to de-iding w,at s,ares to invest in0 ,e -omple3it2 o. t,e risk$return
relations,ip needs to be understood t,ere.ore t,e aim o. t,e resear-, proFe-t will be
to untangle t,is -omple3it2 b2 looking at t,e risk$return relations,ip o. bot, bonds
and t,e Ao,annesburg .inan-ial inde30 #t t,ere.ore .ollows t,at t,e met,odolog2 is
one o. des-riptive statisti-al anal2sis0 1es-riptive anal2sis provides a use.ul
summar2 o. t,e se-urities w,ilst empiri-al anal2sis provides an ,istori-al a--ount o.
t,e risk and return be,avior0 *at,emati-al Buantities su-, as standard deviations and
t,e mean will be used to summarize and interpret t,e data so .orm a -on-lusion0 ,e
risk$return anal2sis was -arried out b2 -onsidering ,istori-al data as pro3ies .or t,e
e3pe-tation o. .uture asset be,avior and also b2 -onsidering e3isting literature
t,erea.ter .indings were outlined0
80 H!("#!S (N "#SK 'N1 "!%"N "!&'#(NSH#P
i. The Modern Portfolio Theory
,e modern port.olio t,eor2 was developed b2 Harr2 *arkowitz during t,e
period 4558$45550 *arkowitz .ormulated t,e port.olio problem as a -,oi-e o. mean
and varian-e o. a port.olio asset namel2 ,olding -onstant varian-e/ ma3imize
e3pe-ted return/ and ,olding -onstant e3pe-ted return minimize varian-e0 ,e mean
is t,e measure o. return o. t,e investment and t,e return o. an asset is measured b2
t,e mean return over time0 ,e varian-e is measure o. risk o. t,e investment and is
t,e probabilit2 t,at a-tual return ma2 di..er .rom e3pe-ted return >Howell and ;ain/
8008: 474$475?0
,e *odern Port.olio ,eor2 provided a .ramework .or t,e -onstru-tion and
sele-tion o. port.olios based on t,e e3pe-ted per.orman-e o. t,e investments and risk
o. t,e investor0 ,e modern port.olio t,eor2 ,as also been -ommonl2 to as re.erred
as mean$varian-e anal2sis0 ,e t,eor2 soug,t to des-ribe t,e be,aviour t,at investors
s,ould engage in w,en t,e2 -onstru-ting t,e port.olio >*arkowitz/ 4555:5$46?0
,e *odern Port.olio ,eor2 provided a .ramework b2 spe-i.2ing and
measuring investment risk and developed a relations,ip between e3pe-ted asset
return and risk0 ,e t,eor2 di-tated t,at t,e given estimates o. t,e return/ volatilities
and -orrelations o. set o. investments and -onstraints on t,e investment -,oi-es0 ,e
modern Port.olio ,eor2 soug,t to provide results o. t,e greatest possible e3pe-ted
return .or t,at level o. risk or t,e results in t,e smallest possible risk .or t,at level o.
e3pe-ted return0 #n *odern Port.olio ,eor2/ t,e terms varian-e/ variabilit2/
volatilit2/ and standard deviation are o.ten used inter-,angeabl2 to represent
investment risk >*arkowitz/ 4555:5$46?0
,e #mportan-e o. t,eor2 was t,at it illuminated t,e trade$o..s between t,e
risk and return and provided a .ramework on w,i-, -onstru-tion o. t,e port.olio was
based on e3pe-ted per.orman-e o. t,e investment and t,e risk appetite o. t,e
investor0 ,e t,eor2 allowed .or t,e .ormulation o. an e..i-ient .rontier .rom w,i-,
t,e investor -ould -,oose ,is or ,er pre.erred investment depending on t,e risk$
returnGmean$varian-e pre.eren-e0 ,e t,eor2 also gave insig,t on ,ow ea-, se-urit2
-o$moved wit, all ot,er se-urities i0e0 bond versus s,ares0 :o$movements resulted in
abilit2 to -onstru-t a port.olio t,at ,ad t,e same e3pe-ted return and less risk t,an
one t,at ignored t,e intera-tion between t,e se-urities >Howell and ;ain/ 8008?0
,e t,eor2 .ollowed t,e pro-ess o. sele-ting a set o. asset -lasses to obtain
estimates o. t,e return and volatilities and -orrelation b2 beginning wit, ,istori-al
per.orman-e o. t,e inde3es representing t,ese asset -lasses0 ,e estimates were used
as inputs in t,e mean$varian-e optimization0 ,e modern port.olio t,eor2 assumed
t,at all estimates are pre-ise or impre-ise t,us treated all assets eBuall20 *ost
-ommonl2/ pra-titioners o. mean$varian-e optimization in-orporated t,eir belie.s on
t,e pre-ision o. t,e estimates b2 imposing -onstraints on t,e ma3imum e3posure o.
some asset -lasses in a port.olio0 ,e asset -lasses on w,i-, t,ese -onstraints are
imposed are generall2 t,ose w,ose e3pe-ted per.orman-es are eit,er ,arder to
estimate/ or t,ose w,ose per.orman-es are estimated less pre-isel2 >*arkowitz/
4555:5$46?0
ii. Capital Asset Pricing Model
Standard asset pri-ing t,eor2 -laimed a dire-t relations,ip between e3pe-ted
e3-ess sto-k returns and risk0 ,is risk$return trade$o.. is a long standing
p,enomenon in investments anal2sis and is t,e .oundation o. .inan-ial e-onomi-s
>&eon/ Nave and "ubio/ 8005?0 ,e rate o. return on an investment was weig,ted b2
t,e per-eived risk o. undertaking su-, an investment0 ,is implied a dire-t
relations,ip between market risk and return .or t,e reason t,at risk$averse investors
reBuired additional -ompensation .or assuming e3tra risk0 *arkets w,i-, were
per-eived b2 investors to be ,ig, risk were asso-iated wit, ,ig,er returns in order to
-ompensate .or t,e risk involved in investing in su-, markets0 :onversel2/ lower risk
markets were -,ara-terised b2 relativel2 lower returns0 ,us it was unambiguous t,at
t,e risk$return relations,ip is a .undamental -on-ept in investment de-ision making
and t,at it is a--epted as t,e -ornerstone o. rational e3pe-tations asset pri-ing models
>&ev,ari and &ev2/ 4577:58$409?0
,e :apital 'sset Pri-ing *odel was developed in t,e earl2 4560Hs b2 Aa-k
re2nor/ <illiam S,arpe/ Aan *ossin and Ao,n &intner0 ,e -apital asset pri-ing
model was built n t,e work o. Harr2 *arkowitz o. t,e modern port.olio t,eor20 ,e
modern port.olio t,eor2 was also -ommonl2 know as t,e mean$varian-e model and
provided algebrai- -onditions on t,e asset weig,ts in mean$varian-e e..i-ient
port.olios0 #n its simplest .orm t,e t,eor2 predi-ted t,at t,e e3pe-ted return on an
asset above t,e risk$.ree rate was proportional to t,e nondiversi.iable risk/ w,i-, was
measured b2 t,e -ovarian-e o. t,e asset return wit, a port.olio -omposed o. all t,e
available assets in t,e market0 ,e -apital asset pri-ing model was a stati- one period
model but t,ere ,ave been some intertemporal e3tension made to it >&ev,ari and
&ev2/ 4577:58$409?0
,e :apital 'sset Pri-ing model is based on a number o. assumptions0 #t
assumed t,at investors -,ose assets t,at t,e2 ,ad per-eived to be t,e mean varian-e
e..i-ient and t,e2 all t,at t,e belie. in t,e e3pe-ted return varian-e pair !/ +0 #t model
assumed t,at t,e risk premium .or an2 asset was linearl2 related to its -ovarian-e and
t,at t,e asset risk premia was dependent on t,e relations,ip o. t,e asset to t,e w,ole
market and not on t,e total risk o. t,e asset0 ,ere.ore t,e -ompetitive eBuilibrium
asset earned premia over t,e riskless rate t,at in-reased wit, t,e assets risk0 ,e
determining in.luen-e on t,e risk premia was t,e -ovarian-e between t,e asset and
t,e market port.olio0 ,e e3pe-ted returns were linearl2 related to t,e beta i. t,e
market port.olio was t,e mean$varian-e >"oss/ 4577:88$30?0
,e sto-kHs risk premium was determined b2 t,e -omponent o. its return t,at
was per.e-tl2 -orrelated wit, t,e market onl2 and t,e e3pe-ted return o. t,e asset
would not depend on t,e stand alone risk and t,at t,e beta o..ered a met,od o.
measuring t,e risk o. an asset t,at would not be diversi.ied awa20 'dditionall2 t,e
sto-k o. t,e e3pe-ted return did not ,ave to depend on t,e growt, rate o. t,e
e3pe-ted -as, .lows ,en-e it was not a reBuirement t,at one -ondu-t an e3tensive
.inan-ial anal2sis o. t,e -ompan2 and .ore-ast t,e e3pe-ted .uture -as, .lows0
,ere.ore in line wit, w,at as been dis-ussed above on t,e -apital asset pri-ing
model one would onl2 need to take into a--ount t,e beta o. t,e sto-k and a parameter
t,at would be eas2 to estimate >Perold/ 8009:3$89?0
's mentioned in t,e beginning t,e -apital asset pri-ing model ,as undergone
several intertemporal e3tensions su-, as elimination o. t,e possibilit2 o. t,e risk$.ree
lending and borrowing/ allowing .or multiple time periods and investment
opportunities t,at -,ange between time periods/ e3tensions to t,e international
investing and ,aving some assets be non$marketable ,owever t,e most important ,as
been t,e rela3ation o. some o. t,e assumptions t,roug, emplo2ing weaker
assumptions b2 rel2ing on t,e arbitrage pri-ing model >;rennan/ <ang and Iia/
8009: 4793$4779?0
iii. The Arbitrage Model
,e 'rbitrage *odel was .ormulated b2 "oss in 4576 and deals s wit, more
t,an one risk .a-tor and provided t,eoreti-al support to t,e -apital asset pri-ing
model dis-ussed above0 ,e arbitrage model was proposed as an alternative to t,e
mean varian-e -apital asset pri-ing model t,at ,ad been introdu-ed b2 S,arpe/
&intner/ and re2nor0 ,e 'rbitrage *odel ,as be-ome t,e maFor anal2ti- tool .or
e3plaining p,enomena observed in -apital markets .or risk2 assets0 ,e 'rbitrage
*odel unlike t,e modern port.olio t,eor2 and t,e -apital asset pri-ing model is a
multi.a-tor risk model instead o. t,e .ull mean$varian-e >"oll and "oss/ 4580:4073$
4403?0
,e arbitrage modelHs assumptions arise .rom t,e neo-lassi-al s-,ool o.
t,oug,t o. per.e-tl2 -ompetitive and .ri-tionless asset markets and its main
.oundation is based on t,e assumption o. return generating pro-ess w,ere individuals
,omogeneousl2 assumed t,at t,e random returns on t,e set o. assets was ruled t,e k$
.a-tor generating model >"oll and "oss/ 4580:4073$4403?0 ,e 'rbitrage *odel was
also based on two main assumptions o. no arbitrage opportunities in t,e -apital
market and t,at t,ere was linear relations,ip between t,e a-tual returns and t,e k
-ommon .a-tors0 ,e e3pe-ted returns were linearl2 related to t,e weig,ts o. t,e
-ommon .a-tors in t,e assumed linear pro-ess and t,e t,at .a-tor anal2sis was used
to e3tra-t t,e k .a-tors .rom t,e sample -ovarian-e matri-es and t,en to test t,e
,2pot,esis b2 t,e regressing returns on t,e average returns against t,e .a-tor
amplitudes o. t,e -ommon .a-tors >rz-inka/ 4586:397$368?0
,is t,ere.ore s,ows t,at t,e arbitrage model allowed .or t,e generations o.
more t,an one .a-tor and demonstrated t,at ever2 eBuilibrium point would be
-,ara-terized b2 t,e linear relations,ip between ea-, assets e3pe-ted return and its
returns response magnitude on t,e -ommon .a-tors sin-e ever2 market eBuilibrium
was -onsistent wit, no arbitrage pro.its >"oll and "oss/ 4580:4073$4403?0
iv. Tobin Q Theory
obin -ontribution to t,e t,eories is t,e addition o. t,e risk$.ree rate to t,e
risk2 assets0 Aames obin >4565? introdu-ed t,e ratio o. t,e market value o. a .irm to
t,e repla-ement -ost o. its -apital sto-k and ,e -alled t,e C7E w,i-, soug,t to
measure t,e in-entive to invest in -apital0 obin@s 7/ was t,e empiri-al
implementation o. Ke2nes@s notion t,at -apital investment be-ame more attra-tive as
t,e value o. -apital in-reases relative to t,e -ost o. a-Buiring t,e -apital0 ,e B ratio
was de.ined as t,e market value o. t,e -ompan2Hs assets t,at is divided b2 assets
repla-ement -ost0 ,is B ratio is also known as t,e average B >"i-,ard and <eston/
8008: 4$48?0 ,e 7 ratio is t,ere.ore t,e ratio o. t,e market valuation o. real -apital
assets t,at -an be reprodu-ed to t,e -urrent repla-ement -osts o. t,ose assets and
.ollows t,e .ormula B J *+G+ >obin and ;rainard/ 4577?0
#. t,e 7 ratio is greater t,an 4 t,en t,e investment is pursued be-ause t,e
-apital is more ,ig,l2 valued t,an t,e -ost to produ-e it in t,e market0 However i. t,e
7 ratio is less t,an 4 t,en it would mean t,at t,e investment would be .orgone
be-ause it would be -ost more to repla-e >;rainard and obin/ 4568:55$488?0 ,e
market valuation represents t,e present value o. t,e e3pe-ted return in w,i-, t,e real
rate o. return gives t,e dis-ount rate0 ,e repla-ement -ost is t,e sum o. t,e present
o. e3pe-ted returns t,at are dis-ounted b2 t,e marginal e..i-ien-2 o. t,e -apita
>*olli-k and )ariaa/ 8040:904$948?0
30 !*P#"#:'& #N+!S#='#(NS () H!
i. Introduction
"isk and return pla2 a -ru-ial role w,en dis-ussing w,at -ategor2 o. s,are one
s,ould invest in0 "eturn on a se-urit2 is t,e average mean over a time period w,ilst
risk is t,e probabilit2 t,at t,e a-tual return ma2 di..er .rom t,e e3pe-ted mean0 "isk
and return -al-ulations di..er a--ording to t,e t,eor2 one uses/ t,at is w,et,er
*odern Port.olio t,eor2/ :apital 'sset Pri-ing t,eor2/ 'rbitrage t,eor2 or obin 7
t,eor20 ,e modern Port.olio t,eor2 was t,e main point o. interest w,en t,is resear-,
was -arried out0 ,e t,eories ,ave s,own t,at a se-urit2 t,at ,ad a ,ig, return is
usuall2 asso-iated wit, a ,ig, risk and t,is was w,at was investigated in t,is
resear-, proFe-t0
ii. Data and methodology
,e data t,at was used to resear-, on t,e risk and return was made up o.
di..erent -ategories o. t,e AS! s,ares inde30 ,ese in-lude t,e 'll S,are #nde3/ t,e
)inan-ial S,are #nde3 and t,e #ndustrial #nde30 ,e real =1P growt, rate was also
in-luded in order to -ompare t,e AS! s,are trends to t,e business -2-le in Sout,
'.ri-a0
,e period under -onsideration was .rom 4556 to 8040/ a 45 2ear period
,en-e t,e "esour-e S,are #nde3 and t,e "')# inde3 -ould not be -onsidered be-ause
it onl2 begins .rom 80060 o -al-ulate t,e return on t,e s,ares t,e .ormulae used was/
K
4
JK1
4
>P
4
P
0
?LGP
0
MMMMMMMMMMMMMM0MMMMMeBuation 3
<,ere K
4
is t,e return on t,e spe-i.i- asset/ 1
4
is t,e a-tual dividend 2ield in t,e
-urrent 2ear/ P
4
is t,is 2ear@s -apital inde3 value >S,are Pri-e? and P
0
is last 2ear@s
-apital inde3 value >Howell and ;ain/ 8008: 474$475?0
,e mean and standard deviation are -al-ulated on a 5 2ear basis t,en on an
overall 45 2ear basis on ea-, -ategor2 o. t,e s,ares and t,en -ompared0 ,e mean
.ormulae used is/
NJOK

GMMMMMMMMMMMMMMMMMMMMM000MM00eBuation 9
<,ere N is t,e mean over a spe-i.i- period o. time/ K

is t,e return o. t,e asset over
spe-i.i- period o. time and is t,e time period0 ,e standard deviation .ormulae
used is/
PJ O K> K

$ N?
8
LGMMMMMMMMMMMM00MMMMMMMM0eBuation 50
iii. Findings
,e return on t,e s,ares was depi-ted on t,e .ollowing diagrams below0
Figure ! "eturn on All #hare Inde$
Figure ! "eturn on Financial shares Inde$
Figure %! "eturn on Financial shares Inde$
Figure &! "eturn on All #hare Inde$' Financial shares Inde$ and Industrial
#hare Inde$ along side "eal (DP gro)th movements
,e bold bla-k line s,ows t,e return on )inan-ial s,ares/ ,e small dotted
line s,ows t,e return on t,e 'll s,are inde3/ t,e das,ed two parallel line s,ows t,e
return on t,e industrial s,ares w,ilst t,e relativel2 large das,ed line s,ows t,e real
=1P growt, rates0
Tables sho)ing Mean ans #tandard deviation
Table ! All #hare Inde$
Period *ean Standard 1eviation
4556 74$ 8000 79 500537 4605958
8004 74$ 8005 79 430805 4506946
8006 74$ 8040 79 480637 8800884
4556 74$ 8040 79 430838 8405946
Table %! Financial #hare Inde$
Period *ean Standard 1eviation
4556 74$ 8000 79 4704705 8604548
8004 74$ 8005 79 4008744 8900650
8006 74$ 8040 79 505797 8905749
4556 74$ 8040 79 4805385 8907555
Table * Industrial #hare Inde$
Period *ean Standard 1eviation
4556 74$ 8000 79 603583 4709805
8004 74$ 8005 79 4007967 8607376
8006 74$ 8040 79 4503338 8309945
4556 74$ 8040 79 4804559 8304495
' se-urit2 t,at s,owed a wider dispersion o. t,e a-tual return around t,e mean
is .ar more risk2 t,an w,ere returns were tig,tl2 -lustered around t,e mean value
>Howell and ;ain/ 8008: 474$475?0 o s,ow t,is relations,ip t,e #ndi-es were
subdivided into t,ree periods/ 455674 to 800079/ and 8004 74 to 8005 79 and 8006
74 to 8040 79 to make anal2sis easier0 ,e )inan-ial s,are inde3 ,ad t,e ,ig,est
standard deviation o. 86045485 in t,e period 455674 to 800079 w,ilst ,e #ndustrial
S,are #nde3 ,ad t,e standard deviation o. 86073763 in t,e period 8004 74 to
8005790 &astl2 t,e 'll s,are #nde3 ,ad t,e ,ig,est standard deviation o. 88008848 in
t,e period in t,e period 800674 to 804079 -ompared to t,e ot,er periods0
<,en one looks t,at t,e grap,s obtained it was noti-ed t,at t,e )inan-ial
S,are inde3 set t,e trend t,at t,e ot,er s,are indi-es .ollowed0 ,is is mainl2
be-ause t,e .inan-ial markets are t,e .irst to .ore-ast and rea-t to business -2-les
out-ome0 ,e general trend o. t,e return was t,at t,e return was .alling .or over a
period o. one 2ear si3 mont,s during 4558G 4555 and t,en starts to rise wit, some
.lu-tuation be.ore again .alling in t,e 8004$80030 ,erea.ter t,ere is a rise t,at
-ontinues .or more t,an 3 2ears be.ore return starts to drop in 8008G8005 t,en rise
again in late 8040 t,oug, it is possible to -on-lude t,at return on s,ares will .all
again be-ause o. t,e t,reat o. t,e se-ond re-ession0
,e .all in t,e return on s,ares ,as been linked to periods in w,i-, t,e world
e-onom2 was going t,roug, a -risis0 ,ere was a drasti- .all in return during t,e
period 455873 to 4555 73 alongside .alling real =1P growt, w,i-, rea-,ed it
lowest o. 00438 in 4558 78 t,erea.ter return and real =1P growt, starts to rise along
post 4555 740 ;e.ore t,at in t,e period leading up to t,e 4558 'sian -urren-2 -risis
t,e return on )inan-ial s,ares ,ad rea-,ed t,eir ,ig,est return o. 55037 in 4558 78
w,i-, surprising t,oug, ,ad one o. t,e lowest real =1P growt, rates00 ,e .all in
return in 8004$8008 is due mainl2 to t,e &atin 'meri-a -risis w,ere similarl2 a.ter
t,at t,e #ndustrial S,are inde3 re-orded a ,ig,est return on 55078 in 8009 78 w,ere
real =1P growt, rates were at a start o. a peak o. growt, 3 and t,e 'll S,ares inde3
also re-orded a ,ig,est return 0. 68039 in 8006 79 w,ere real =1P growt, rea-,ed
its ,ig,est o. 70050
iv. Conclusions
,is meant t,at in ea-, period w,ere t,e spe-i.i- s,are inde3 ,ad t,e ,ig,est
mean and standard deviation t,at inde3 was more volatile -ompared to t,e ot,ers in
t,at period and t,is ma2 ,ave been to a number o. reasons0 However in t,ose periods
also t,e least volatile was 'll S,are #nde3 >455674 $ 800079 and 800474 $ 800579?
and t,en t,e #ndustrial S,are #nde3 >8006 74 Q 8040 79?0 #t -an be said t,at real
=1P growt, rate is a..e-ted b2 t,e return on S,ares be-ause it is onl2 a.ter t,ere ,as
been a drop in return t,at we ,ave a drop in real =1P growt, rates0 #t s,ould be
noted t,at it is also probable to -on-lude t,at t,e reason we ,ave a ,ig, standard
deviation o. t,e 'll s,are inde3 .rom t,e period 8006 to 8040 is be-ause o t,e
in-lusive o. t,e "esour-e S,are #nde3 t,at ,ad not been -onsidered in t,is resear-,0
,e "eturn trends between all t,e s,ares are more or less t,e same despite t,eir
di..erent industries0 Hig, returns are generall2 .ollowed b2 ,ig, loses and market
-onditions a..e-t t,e movement o. return on s,ares0
90 :(N:&%S#(N
,ere are di..erent t,eories t,at seek to e3plain risk and return namel2 t,e
modern port.olio t,eor2/ t,e -apital asset pri-ing t,eor2/ t,e arbitrage t,eor2 and t,e
obin 7 t,eor20 'll t,ese t,eories seem to drive to one -on-lusion t,at a se-urit2 t,at
,as t,e ,ig,est return will be asso-iated wit, a ,ig,est risk0 ,is -on-lusion ,as been
supported b2 t,e data t,at ,as been anal2sed0 "eturn on S,ares ,ad been t,e ,ig,est
in t,ose periods in w,i-, t,e spe-i.i- s,are ,ad t,e ,ig,est mean and standard
deviation and vi-e versa0 #. one seeks to .ormulate a port.olio it would be advisable
t,at t,e2 sele-t a maForit2 o. s,ares in t,e industrial s,are inde3 t,at ,ad t,e lowest
standard deviation t,an t,e )inan-ial S,are #nde30
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