Asset Pricing Model: The Precisely One to Predict Expected Return

Abstract

The paper used three asset pricing model which is Capital Asset Pricing Model, Arbitrage Pricing Theory, and Dividend Growth Model to calculate the expected return of four companies including Amazon, Southwest Airlines, JP Morgan Chase, and Exelon Corporation. Then, will use the result to compare with the actual return to test which model is more accurate and which company has the highest return. These companies are the largest one in their own industry (E-commerce, Airlines, Bank, and Energy). The data is mainly gathered from Yahoo finance, Federal Reserve Bank of St. Louis, and NASDAQ. The paper found that CAPM is the most accurate model in predicting the expected return of the asset. And when look at the expected return computed using CAPM, the company that have the highest return is JP Morgan Chase.