Historical Cd Rates

Summary

This study examined the relationship between risk-free rate and equity markets. For five years one month of time series data from 2003-2007 Treasury bills and KSE-100 index have been taken to the research study. For data analysis, simple regression model approach was applied. Back in stock was taken as the dependent variable while the risk-free rate as independent variables. In addition, Pearson correlation matrix was also obtained through a correlation model. The results suggest that risk-free rate had no effect on the dependent variable. Furthermore, no correlation between the risk-free rate and dividend yield has been found. Therefore, a bivariate relationship can exist between the risk-free rate and equity markets. A multiple regression model of risk-free rate and exhibits a high stock return autocorrelation, which indicates that the stock market performance is a function of more variable than the risk free rate.

1. Introduction:

The risk-free rate is the return on security or portfolio of securities that is free of default risk. Theoretically, the performance of a portfolio of zero-beta is the best estimate of the risk-free rate. The CAPM predicts the risk relation ship of an asset and its expected return. This relationship is very useful in two important ways. First, it produces a reference for the evaluation of various investments. Secondly, it helps us to make an educated guess on the return that can be expected from an asset that has not been traded on the market.

Risk free rate is an ingredient in more and more critical of all statements calculated on financial assets. The security market line (SML) predicts a simple linear relationship between expected return and standard deviation of the capital market line (CML) contribute to a relationship between the risk-free rate and in a straight line from free rate risk (RF) tangent to the efficient frontier.

Investors to combine their securities uncorrelated contribute to lesson the risk of a portfolio. They want to know the reasonable level of risk in their portfolios. Research studies looking at what happens to the risk of portfolio securities selected randomly are combined into equally weighted portfolios. When one begins with a single stock, portfolio risk is that the standard deviation of a stock. As the number of randomly selected securities in the portfolio increases, the overall portfolio risk is reduced.

The total risk include systematic risk and unsystematic risk. Systematic risk is due to risk factors that affect the entire market, such as changes in the economy, the global energy picture world situation, politically and economically. This kind of risk is not diversifiable even well-diversified portfolio exposure to this type of risk. The second component, the unsystematic risk, is unique to the enterprise. It is independent of all factors relating to systemic risk. Investors always want to be compensated for taking systematic risk. They should not, however, expect the market to offer additional compensation for bearing preventable diversifiable, unsystematic risk. It is this logic that underlies the model of asset prices (CAPM).

2. Importance of the Study:

This study aims to examine the relationship between risk-free rate (Treasury Bills) and the return of the stock market exchange Karachi KSE-100 Index. There was a debate among investors, some felt that the risk-free rate affect the market while others were positive market performance View stock moves independently regardless of risk free rates.

Thus, in order to resolve this controversy, Curren.