CAPM Works in Singapore (Manuscripts) (Capital Asset Pricing Model‪)‬

ABSTRACT This paper presents a study that has successfully predicted excess returns on the Stock Exchange of Singapore (SES) during the period 1986-1993. Results are positive in six out of the seven years tested. Only the year that uses estimated beta from time-series data in 1987 failed the prediction model; and, it is likely to be an exceptional case because of the Wall Street Market Crash phenomenon in 1987. To support the usefulness of this reconstructed capital asset pricing model (CAPM), I ran another set of test results with a naive model which assumes the excess return for stocks are the same every year. Both sets of test results are compared. The naive model results are negative. They show that the excess return for stocks vary from year to year. Therefore, the predictive capability of my model is useful.