A test on the mean/variance efficiency of the Singapore market portfolio.
Ong, David Wen Shiong.
Chong, You Liang.
Date of Issue2011
College of Business (Nanyang Business School)
The objective of our study is to investigate the applicability of CAPM in Singapore through the testing of the mean/variance efficiency of the Singapore market portfolio. This is the only single testable hypothesis of CAPM as argued by Roll (1977). Our sample comprise of the total monthly returns of SGX-listed stocks for the period 1st October 2000 to 31st October 2010. We use the reverse engineering approach constructed by Levy and Roll (2010) to find the minimum variations in sample parameters required to ensure that the proxy is mean/variance efficient. The market is mean/variance efficient if the adjusted proxy portfolio is not significantly different from the sample portfolio. Remarkably different from what was found in previous studies on mean/variance efficiency, our results show that the adjusted proxy portfolio is mean/variance efficient and perfectly consistent with the CAPM. With Levy and Roll’s (2010) methodology shown to be robust and the Singapore market found to be mean/variance efficient, our study motivates the use of CAPM by decision makers in Singapore.
Final Year Project (FYP)
Nanyang Technological University