| Abstract [eng] |
This graduation paper is intended to provide an understanding of risk and return models. The object of this paper is risk and return relationship in modern portfolio theories. In order to evaluate three risk and return models, investment motives, risk and return concepts and relationship between them are needed to describe. Though stock market is one of the most risky, the possible high returns make it very attractive. Investors, who choose to put their money in stock market, are motivated by many reasons. Risk and return are the main motives of choosing this type of investment. In order to explain the reasons of price movements, risk sources are needed to be determinate. After that the risk concept can be defined. The return from the investments is related with risk level. So the relationship between these two measurements is linear: the higher risk is accepted, the higher return can be expected. Diversification can minimize risk and maximize return. The first part of the graduation paper also deals with three risk and return models. CAPM is known as one factor model which makes stocks’ risk correlated with the market risk. APT is an alternative to CAPM. This model evaluates more than one factor that is way it is called multifactor model. Fama-Freanch three factor model is the continuation of CAPM and returns depend on market risk, size risk and “value” risk. The second part of the graduation paper is intended for testing these three models in Lithuanian stock market. Some assumptions were needed to make for adopting CAPM, APT and Fama-French models. The results are given in tables and illustrations. The next part of the paper compares the results of CAPM, APT and Fama-French models. The highest returns are given using Fama-French model. The formed portfolio is the most risky using APT. So the conclusion can be made – multifactor models gives bigger returns and on the other hand they compute higher risk. The whole graduation paper consists of 70 pagers. It covers 11 tables and 10 pictures. |
