Empirical asset pricing: models For the Kenyan scenario
Kashangaki, Mary Elizabeth Byera
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This study compared the capital asset pricing model to the consumption based capital asset pricing model in pricing assets in the Kenyan market using the NSE-20 index, 91-day T-bill rate and the quarterly consumption growth rate over the period from 2000 to 2012. The assets that were evaluated are Sasini, Nation Media Group, Kenya Commercial Bank, Athi River Mining Company Limited, Jubilee Insurance and Mumias Sugar Company Limited. The reason for doing this was to take into account commonly traded assets for the largest industries in Kenya. This paper attempted to undertake the two step procedure recommended by (Mankiw & Shapiro, (1986). Theoretically, by nesting the capital asset pricing model and the consumption based capital asset pricing model into one equation, the validity of both betas can be compared for the asset prices being evaluated. Due to the lack of data available in the Kenyan market, it became clear during step 1 the procedure that utility functions could not be estimated effectively for individual stocks. Thus an aggregate market beta was estimated for the CCAPM. In contrast the estimation of a market CAPM beta proved too complex as the model is simple and incorporating prices of different assets into one model was not possible. Step 2 could therefore not be undertaken in this paper. The paper concludes that is necessary to conduct further research and in depth collection of data to allow for the CCAPM model to be tested for the Kenyan market. In the meantime CAPM remains the better model to use for asset pricing in Kenya.