and holding the index, it is less risky. If transaction costs increase to 1% per trade, then α decreases to 1.82 basis points (4.6% yearly), but still is significantly positive at the 10% significance level. However, the estimate of β is not significantly smaller than one anymore, if as little as 0.25% costs per trade are charged. It becomes even significantly larger than one if 1% transaction costs are implemented, which indicates that the strategy applied to the MSCI World Index is riskier than buying and holding the market index.
Trading case 1 α<0 α>0 β<1 β>1 α>0 ∧ α>0 ∧ β<1 β>1 0% 0 51 23 0 23 0 0.10% 0 46 30 0 27 0 0.25% 0 45 29 0 26 0 0.50% 0 36 31 5 22 3 0.75% 0 30 31 6 19 2 1% 1 25 30 7 15 3 Trading case 2 0% 0 50 19 0 18 0 0.10% 0 44 23 1 20 0 0.25% 0 41 25 1 22 0 0.50% 0 35 25 4 20 1 0.75% 0 29 28 4 17 1 1% 1 27 28 6 16 2 Trading case 3 0% 0 51 29 0 29 0 0.10% 0 45 28 1 25 0 0.25% 0 44 28 2 26 0 0.50% 0 37 28 3 23 0 0.75% 1 32 33 3 24 0 1% 2 27 34 4 20 1
Table 5.9: Summary: significance CAPM estimates, mean return criterion. For each transaction cost case, the table shows the number of indices for which significant estimates are found at the 10% significance level for the coefficients in the Sharpe-Lintner CAPM. The local main stock market index is taken to be the market portfolio in the CAPM estimations. Columns 1 and 2 show the number of indices for which the estimate of α is significantly negative and positive. Columns 3 and 4 show the number of indices for which the estimate of β is significantly smaller and larger than one. Column 5 shows the number of indices for which the estimate of α is significantly positive as well as the estimate of β is significantly smaller than one. Column 6 shows the number of indices for which the estimate of α is significantly positive as well as the estimate of β is significantly larger than one. Note that the number of indices analyzed is equal to 51.
If the local main stock market index is taken to be the market portfolio in the CAPM estimations and if zero transaction costs are implemented, then, as further can be seen in the tables, also for the other indices the estimate of α is significantly positive at the 10% significance level. Further the estimate of β is significantly smaller than one for 29 indices. For none of the indices the estimate of β is significantly larger than one. The estimate of α in general decreases as costs per trade increases and becomes less significant for more indices. However in the 0.10, 0.25, 0.50, 0.75 and 1% costs per trade cases for
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