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Analyzing Returns in the European Banking sector in the context of the Default of Credit Suisse
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Orientador(es)
Resumo(s)
The present study tests the predictive capabilities of the Capital Asset Pricing Model and the Fama
French Three Factor Model, two of the most popular asset pricing theories. The CAPM is a single
factor model that dictates the relationship between risk and return, the FF3FM is a three factor model
with a component of market risk but also has two other factors, SMB (small minus big) and HML (high
minus low), that together try to explain the returns of a certain security or portfolio. The forecasting
power of both models will be tested in five stocks of major European Investment Banks, one of which is
Credit Suisse that defaulted in March of 2023. In order to test the models, weekly historical returns from
June 2017 to June 2022 will be used to run linear regressions which will allow for the estimation of the
necessary coefficients to be applied in the empirical models and therefore test their prediction capacity.
Results suggest that, although some approximation between the real returns on the stocks and the
forecasted returns, the reality is that these models were not able to accurately predict the market movements of the stocks neither the default of Credit Suisse. In the CAPM, all the beta values were deemed
necessary to explain a portion of the model, even though without the best accuracy. The perhaps more
interesting result came with the FF3FM outputs. For all stocks, while the beta coefficient that was related to the market risk was considered statistically significant, the same can not be said for the other
two beta coefficients related to SMB and HML. Not one coefficient of the SMB factor was proven to be
statistically significant and regarding the factor HML, only BNP Paribas and Santander had significant
beta coefficients for it.
The difference between the forecasted stock returns values with the CAPM and the FF3FM was very
little, almost insignificant. The market risk beta coefficients are very close between the two models, the
R
2 value is slightly higher in the FF3FM and the impact of the two statistically significant betas related
to the HML factor is residual.
Descrição
Trabalho de projeto de mestrado, Matemática Aplicada à Economia e Gestão , 2024
Palavras-chave
CAPM FF3FM Previsão Regressão Bancos Trabalhos de projeto de mestrado - 2024