Capital Assets Pricing model |Analysis

Capital Assets Pricing model |Analysis Since 1970 the financial company using the Capital Assets Pricing Model (CAPM) to calculate their cost of the portfolio performance and the cost of capital. However, there are a lot of models in assets pricing have to identify the riskiness of the assets, and there are many of the researchers have developed the capital assets pricing model (CAPM) and contribute in pricing the risky financial assets such as, Mossin (1966), Sharpe (1964) and Lintner (1965). CAPM calculated the risk of assets by measuring the risk premium for each unit across the entire assets and measuring the means of market beta. Therefore, the CAPM module has a linear relationship between the market beta and the risk premium of the assets which can be considered as a methodical risk. Moreover, the CAPM illustrated that the assets return is fluctuated due to the values of the assets market beta. (Fazil, 2007) Advantages of CAPM However, Capita Assets Pricing Model (CAPM) is useful to examine the performance of portfolios and evaluating the cost of equity for the companies. And determine the theories of asset pricing. While, before CAPM had been founded by John Linter (1965) and William Sharpe (1964) there were no models can help in assets pricing models and predictions about returns and risk. The attraction of the capital asset pricing model considered to be powerful in assessing the risk and determine the relationship between the risk and expected return. In contrast, the simplicity of the CAPM reflects true failing and let to an inefficient record about invalidate the way it is used in applications. Also, the inadequacy of the empirical tests and proxies for the market portfolio led to fail in the model. However, if the difficulties of the market broker invalidate the model test, it also will cancel many applications, which normally lend the market broker used in empirical tests. While, for the expectation about the expected return and risk, the researcher will start with the logic summary. After that, will illustrate the previous empirical application on the model and explanation about the challenges of the shortcoming of the Capital Assets Pricing Model (CAPM) (Fama and French, 2003) Fama and French model The assessment of the cost of equity and the expected return for the individual investor or individual share is considered to be an important point for the financial decision, for instance, the investors who are associated to the capital budgeting, evaluating the performance and portfolio management. Therefore, there are two alternatives for this reason. Firstly, we can use on a factor which is Capital Assets Pricing Model (CAPM). Secondly, we can use the there-factor model which is known as Fama and French model. Although, there are many indications from academic literature for assess and evaluating the portfolio returns, and there are many users of the two models such as, Bruner, Eades, Harris and Higgins (1998) and Graham Harvey (2001) who prefer the (CAPM) model to assess and evaluate the cost of equity.( Bartholdy and Peare, 2005). The (CAPM) model consider the accurately of choosing a market portfolio broker, and the difference in the returns of the security is the only appropriate source of methodical risk. Consequently, the premium of the risk on the portfolio of the securities or individual security consider as the function of methodical risk which can be measured by beta on the appropriate benchmark index. In contrast, Fama and French (1993) changed the capital assets pricing model (CAPM) to three factors. Firstly, portfolios explain the variation in the return of the company with high opposed to the low market value ratio. Secondly, portfolios illustrate the difference in the expected returns of large and small companies (SMB). Finally, the premium of the risk on the security is primary for methodical risk and can be measured by betas. Moreover, Carhart (1997) added new factor for the Fama and French risk-return, and brings in a fourth factor known as a price momentum factor. This factor explains the tend ency of the company with positive previous profits in order to gain positive future returns and for companies with negative previous profits in order to gain negative future returns. However, this model (Fama and French Model) is applying statistical regression as follows: r rft =a j +b j rmt rft +b j SMBt +b j HMLt +e jt (1) where, rjt: is the known profits on security j over period of time t; rmt: is the profit have been made from the market over the period t. I got the chain of the known profit on the market, (rmt-rft) from ken Frenchs website4 where it is illustrated as the value weight return on all NASDAQ, AMEX and NYSE shares (from CRSP) and deducting the treasury bill for one month. Rft: is the rate of the risk free over the period t and explained here by the monthly profit on the quarter period of treasury bill a j: is the cut off and explained by the Arbitrage pricing model in order to be equal to zero. b1 to b3 : is the betas factor on the factors of three risks which include the HML, SMB and the excess return on the market. e jt : is the remaining profits on the portfolio j over the period of t SMBt: is the variation in the profits for the small companies against companies over the period of t. HMLt: is the variation in the profits of the companies with big market value (B/M) ratio against the profits of the companies that have low B/M ratio. However, Carharts (1997) divided this model (Fama and French model) as follow: r r =a +b r r +b SMB +b HML +b MOM +e (2) The price momentum factor (MOM) considers as the profit on high prior return portfolio and detected the average profit on low prior profit portfolios, which is the average profits on securities with the top profit from the performance over the previous years minus the average profit on securities, which is had the bad profits from the performance (Bello ,2008) Criticism of CAPM Capital Assets Pricing Model does not give a clear view about the average stock returns. Particularly, the CAPM does not illustrate why during the previous 40 years, small shares do better than large shares. Also, CAPM does not illustrate how the companies which have high rate of a book to market (B/M) ratio did better than the companies with low (B/M) ratios. Moreover, it does not explain why the shares that continue to achieve high profit do better than the companies which achieve low profits. However, the aim of this research is to comprehend if the version of CAPM can illustrate these patterns. According to Jensen (1968), Dybving and Ross (1985), Jagannathan and Wang (1996) who said that the Capital Assets Pricing Model (CAPM) can carry perfectly, time by the time, although that the shares are mispriced by the capital assets pricing model CAPM. Also, the unqualified alpha can be zero when the alpha is not conditional, and if beta fluctuates during the time and is related with the market volatility or equity. In other words, the portfolio of the market can be variance and efficient. (Hansen and Richard, 1987) Furthermore, there are many studies discussed that the time varying beta can illustrate the effect of B/M and the size. Also, Zhang (2005) contributes in developing the model when the high risk premium will lead to high B/M stock. Moreover, many researchers as Lettau and Ludvigson (2001), Lustig and Van Nieuwerburgh (2005), Jagannathan and Wang (1996), and Santos and Veronesi (2006) who explained that high, small B/M beat shares will be varying during the trade cycle, and according to the researchers, widely explained why those shares have good alpha. (Lewellena and Nagel, 2006) According to Fama and French (1992) who illustrate a value premium in u.s share return in 1963, and shares that have a high ratio of the book value of equity to the market value of equity have higher profits than shares with a non-high book to market ratio. Expand the exam back to 1926, Fama and French (2000) document a rate premium in the profit of the beginning period. Moreover, Fama and French (1993) illustrate that the capital assets pricing model (CAPM) of Sharpe (1964), Ang and Chen (2005) and Lintner (1965) did not explain the premium value. Also, Loughran (1997) said the premium value from 1963 to 1995 in any case exacting to small shares. This paper has three aims. Firstly, to give a clear picture about the value premium fluctuating with the company size. Secondly, evaluating if ÃŽÂ ² is in relative to the average profit by capital asset pricing model (CAPM). Finally, to measure whether the market of capital assets pricing model (CAPM) ÃŽÂ ²s illustrate the premiums value. Therefore, the results of the variation in premium value are easily summarized. Moreover, Loughran`s (1997) proved that and said there is no premium value among large shares appear to be exacting to (1) applying the book-to- market ratio as he growth value indicator. (2) the post-1963 period (3) determines the test to u.s. shares. During the period 1926 to 1963, the premium value is the same for small and big u.s. shares and when we use price earnings ratio rather than market to book ratio in order to distinguish growth stock and value, and during the period 1963-2004 introduce small variation between the premium value to big and small us shares. Moreover, they used another sample test, and they measured international premium value during the period 1975 to 2004 from 14 main markets outside the united states of America (USA), and the results of B/M or E/P on international stocks shows that the premium value is parallel to big and small shares, and the indication on the USA premium va lue and the capital assets pricing model (CAPM) is a bit more difficult. The overall premium value in the USA average profit is very similar and there is no variation before and after 1963, while Franzoni (2001) found that market ÃŽÂ ²s fluctuated dramatically. After that period, stocks value to indicate to lower ÃŽÂ ²s than stock growth the overturn of the needs of the capital asset pricing model (CAPM) to illustrate the premium value. Accordingly, the capital assets pricing model fails the exam during the period 1963 to 2004; if or not one permit to for time variation ÃŽÂ ²s over the period 1963 to 2004. Furthermore, the stock value had higher ÃŽÂ ²s compared to growth stock, and Ang and Chen (2005) found that the capital assets pricing model determined the premium value in higher rate. And it is tempting to gather that the capital assets pricing model gives a good explanation of the average profits before 1963. Conclusion According to the CAPM which suggests that the all difference in ÃŽÂ ² across securities is the same method with the expected returns. On the other hands Fama and French (1992) suggest that the difference in ÃŽÂ ² connected to size proves up in the average returns when the portfolio is created on size and ÃŽÂ ², but the difference in ÃŽÂ ² unconnected to the size appears to go unrewarded. This proposes that disagree with the CAPM, the size or a non-ÃŽÂ ² risk linked to the size that counts, not with ÃŽÂ ². Thus the examinations here expand this result. When the portfolios are formed on the size, B/M, and ÃŽÂ ², they find that the difference in ÃŽÂ ² linked with B/M and size are compensated with the average of the returns for 1928 to 1963, on the other hands the difference in ÃŽÂ ² unconnected to size and B/M goes unrewarded during the period 1928 to 1963. (Fama, and French, 2006) In conclusion, our evidence that the variation in ÃŽÂ ² is irrelevant to B/M and size is unrewarded in average profits is as efficient for huge shares and for small shares. This should lay to rest the common claim that experiential infringement of the capital assets pricing model is inconsequential due to the limited small shares and consequently, small fraction of invested wealth. Communication: A Literature Review Communication: A Literature Review Chapter 2 Literature Review 2.0 Introduction People communicate since they are part of society. The speech plays the main role in the communication, since it can express complicated ideas through important tone in the use of wide range of means. However the function of speech is not only convey information or messages but also connected with the interaction between people. This interaction supposed to be polite as etiquette of absolute majority of culture so that people can feel comfortable while communicate. Due to this, politeness should be applied in daily conversation. Politeness is a phenomenon that has been drawing a lot of attention in recent years. According to Huang (2008), everyone perceives as natural and understood what it means. According to many linguists, the importance of politeness strategies lies in maintaining a social order and is seen as â€Å"a precondition of human cooperation† (Brown Levinson, 2000, xiii). Lakoff said that the purpose of politeness is to avoid conflicts (Lakoff, 1889. 101). Polit eness strategies are learned when your mother tells you to thank someone who has, for example, given you a present for your fifth birthday. It seems to be very important to stick to these conventions, which have developed since human being exists. However, the politeness theory by Brown and Levinson is widely accepted and utilized as the basis for research by the researchers in the field of not only sociolinguistics but of psychology, business, and so on (Yuka, 2009). This study will focusing on the use of Brown and Levinson politeness strategies among University Tunku Abdul Rahman (UTAR) student and measure the frequency they used it. 2.1 Politeness Theory/Principle Politeness theory is the theory that accounts for the redressing of the insults to face posed by face-threatening acts to addressees. Politeness theory, derived from Goffinan’s (1967) understanding of â€Å"facework,† suggests that all individuals hold two primary desires, positive face (the desire to be liked by others) and negative face (the desire to have one’s actions unconstrained by others). In our interpersonal interactions, we occasionally threaten others’ face needs, or desires, by exposing them to criticisms which is positive face threatening acts and requests which called negative face threatening acts. According to Simpson (1997), Face Threatening Acts (FTAs) is utterances that disrupt the balance of face maintenance. Thus, the manner in which we criticize or make requests of another is influenced by the degree of politeness that we wish to convey. Goffman’s (1967) argued that maintaining face feels good will showed an emotional attachme nt to the face that we maintain and disruptions of this, or losing face, results in a loss of the internal emotional support that is protecting oneself in a social situation. Plus, maintaining it is the expression of the speakers’ intention to mitigate face threats carried by certain face threatening acts toward another (Mills, 2003, p. 6). Relying on a Grician framework, proposed the Politeness Principle (PP) and elaborated on politeness as a regulative factor in communication through a set of maxims (Grice, 1989). Politeness, as found out, is a facilitating factor that influences the relation between ‘self’, which means the speaker, and ‘other’ that is the addressee and/or a third party. Besides, it minimizing the expression of impolite beliefs as the beliefs are unpleasant or at a cost to it (Leech, 1983). Later, politeness formulated by Brown Levinson (1978;1987). Politeness theory has since expanded academia’s perception of politeness. B esides, in an extension of Goffman’s (1967) discussion of face, Brown and Levinson (1978) also used two types of face that Goffman mentioned. Another scholar Yule, (2006) defines positive face is the pro-social person you present yourself as while negative face suggests giving space to disagreement or refusal, to have freedom of action and not to be imposed by others. In addition, politeness theory by Brown Levinson, (1978;1987) is a dynamic theory of human behavior describing linguistic strategies associated with politeness behavior. Because of its all-encompassing nature and ability to accommodate diverse aspects of human behavior, such as cross-cultural differences, gender roles, exchange theory, and interpersonal address, this theory has been considered to be both exemplary and a desirable ideal for experimental social psychology as a whole (R. Brown, 1990). However this study was not to examine face conceptualization as past study by Rudick (2010) which the researcher was tried to get perception of students by combining politeness strategies and face conceptual with classroom justice scales. Yet this study is just focused on the use of politeness strategies among Universiti Tunku Abdul Rahman (UTAR) students and the frequency scale of each strategy. 2.2 Brown and Levinson’s politeness strategies Brown and Levinson’s approach is based on Goffman’s study on the notion of face. Goffman (1967) defines face as an image of self-delineated in terms of approved social attributes. The moment a certain face is taken, it will have to be lived up to. Here he coins the expressions ‘to lose face’ and ‘to save one’s face’. From these concepts, the following expressions are derived: ‘to have, be in or maintain face’, which stand for an internally consistent face to be in the wrong face, which refers to the situation when information clashes with the face which a person sustains; and to be ‘out of face’, which means that a participant’s expect line is not yet prepared for a certain situation (Goffman, 1967). Goffman claims that interaction, especially face to face talk, is ruled by a mutual acceptance that participants in an encounter will tend to maintain their own face, defensive orientation, as well as other p articipants’ faces, protective orientation. â€Å"To study face-saving†, he states, â€Å"is to study the traffic rules of social interaction† (1967:12). According to him, face- saving actions are usually standardized practices which differ from one society to another as well as among subcultures and even individuals. Despite the differences, everyone is expected to have some knowledge and experience of how face work is used. Brown and Levinson borrowed these concepts and elaborated them somewhat in order to define the strategies that speakers follow when constructing messages. They treat the aspects of face as ‘basic wants’, and they address the universality of the notion of face. According to them, face has a twofold character positive face, which stands for the desire to be approved of and negative face, which responds to the desire that one’s actions are not hindered (Brown and Levinson 1987). They shape the term face-threatening acts (FT As), and agree with Goffman that interlocutors will try to maintain others people’s faces as well as their own. Therefore, the effect of FTAs will be minimized as much as possible through linguistic strategies (Brown and Levinson 1987). There are four strategies in politeness based on Brown and Levinson which are positive politeness, negative politeness, bold on record and bold off record. However, in this study, bold off record is not included because the theory is not deeply explained and difficult to collect data in classroom interaction. According to David A. Morand ( 2003 ), this difficulties will encounter when researcher need to detect sentences based on ambiguous meaning. Based on past study by Scollon and Scollon (1995), negative politeness is often preferable than positive politeness among British people. On this study, the researcher again will used Scollon and Scollon’s hypothesis to measure a qualitative data among UTAR student which can be clearly state a s Asian people. To fulfill the needs of this study the researcher applied three out of four politeness strategies. First strategy is positive politeness which mean an expression of solidarity which can say as appreciating addressee’s positive face and sharing the same values plus an act of sympathy towards the addressee. In other word, no inference required (Hirschova, 2006). Meanwhile based on Brown and Levinson (1987), positive politeness is a sender’ attempt to communicate intimacy with receivers. This kind of intimacy can be noticed in a friendly and familiar conversation in which the relationship between addresser and addressee is close. Second type is negative politeness which enables the speaker to avoid conflict among them while communicate by hesitating and softening the utterance with devices such as modality or indirect questions (Rudick, 2010). To make it clear, according to Brown and Levinson (1987), negative politeness is redressive action addressed to the addressee’s negative face. In other word, the key aspect is the addresser show respect towards the addressee by giving him/her freedom to react in a free way. In fact it used more intended enunciation in a careful way with a set of polite phrase examples Could you,†¦Sorry to bother you but,†¦ The addresser is extremely indirect so as not to harm the addressee’s negative face and hurt their feeling. Usually this strategy happened among unfamiliarity between the addresser and addressee or their different social status. Third type is bald on record which can be defined as a direct way of saying things, without any minimization to the imposition, in a direct, clear, unambiguous and concise way (Brown and Levinson, 1978;1987) For example â€Å"Do it!†. Brown and Levinson (1987) claim that the primary reason for bald on record usage may be generally stated as whenever the speaker wants to do FTA with maximum efficiency more than s/he wants to satisfy hearer’s face, even to any degree, s/he will choose the bald on record strategy. Final type is bald off record which Brown and Levinson (1987) defined as a communicative act which is done in such a way that is not possible to attribute one clear communicative intention to the act. In this case, the actor leaves her/himself an â€Å"out† by providing her/himself with a number of defensible interpretations. S/he cannot be held to have committed her/himself to just one particular interpretation of her/his act. In other words, Brown and Levinson claim, the actor leaves it up to the addressee to decide how to interpret the act. Off record utterances are essential in indirect use of language. One says something that is rather general. In this case, the hearer must make some inference to recover what was intended. For example, if somebody says â€Å"It is hot in here†, the hidden meaning of the utterance can be a request to open the window or to switch on the air conditioner. However due to this hidden meaning and ambiguous, this strategy will not be carry out to collect data on the use of politeness among UTAR student. This statement was agree by the scholar David A. Morand ( 2003 ) in his book ‘Gender talk at work’ by mentioned this difficulties will encounter when researcher need to detect sentences based on ambiguous meaning. To sum up, the politeness strategies may be applied and this study and this study will investigate how student use Brown and Levinson (1978;1987) politeness strategies with their instructors based on open ended question given and finally this study will measure or calculate the frequency that student used on the three type of politeness strategies. 2.3 Classroom interaction Language classrooms can be seen as sociolinguistic environments (Cazden, 1988) and discourse communities (Hall and Verplaetse, 2000) in which interaction is believed to contribute to learners’ language development. According to a review of studies in the area of classroom interaction and language learning presented by Hall and Verplaetse (2000), interactive processes are not strictly individual or equivalent across learners and situations; language learning is a social enterprise, jointly constructed, and intrinsically linked to learners’ repeated and regular participation in classroom activities. Based on Ghosh (2010), classroom interaction is a practice that enhances the development of the two very important language skills which are speaking and listening among the learners. This device helps the learner to be competent enough to think critically and share their views among their peers. A major goal of is to provide a prospective teachers with sufficient knowledge, s kills and behavior to enable them to function effectively in future teaching experience. Interaction has a similar meaning in the classroom. We might define classroom interaction as a two-way process between the participants in the learning process. The teacher influences the learners and vice versa. The teacher’s role is important to influence the learner. It is the responsibility of the teacher to create a learning atmosphere inside the classroom. It is through these interactive sessions that the teacher can extract responses from learners and motivate them to come out with new ideas related to the topic. Teacher is an observer who helps the learners to construct an innovative learning product through group discussions, debates and many more. Teacher also will define their self as a planner who plans out the best of the modules of interaction that would be effective to invite the learners in classroom interaction (Ghosh, 2010). Meanwhile, in vice versa which the learners ar e trying to influence the teacher is by students’ sense of social relatedness in classroom (Connell and Wellborn, 1991). When students experience a sense of belonging at school and supportive relationships with teachers and classmates, they are motivated to participate actively and appropriately in the life of the classroom.