Executive Summary
This report focuses on applying CAPM model to analyze the performance of a stock issued by Austar United Communications Limited (AUN). It includes the following six major parts:
? Introduction of AUN
? Beta estimation
? Alternative beta adjustment techniques
? Calculation of abnormal return
? Share price fluctuations and events
? Conclusion and recommendation
1. Introduction
AUSTAR United Communications Limited (AUN) is a provider of subscription television services in Australia, mainly providing satellite delivered services to regional and rural via a satellite distribution platform owned by AUN and Optus. The core business of AUN is TV service, and it also offers mobile telephone and Internet services. In addition, AUN operates a wireless cable network, which was established in 2000 and is now available nationally. (http://www.aspecthuntley.com.au.)
2. Beta estimation
2.1. The importance of beta estimation
The capital asset pricing model (CAPM) was formed on the basis of Professor Harry Markowitz's basic theory of portfolio choice. This model can be used by investors to determine the expected return on any security. The equation is:
E(Ri,) = Rf +ß* E(Rm-Rf,)
Where E(Ri,) = the expected return on security i
E(Rm) = the expected return on the market
Rf, = the risk-free rate of return
ß = the beta of security i
As the CAPM reveals, in order to apply the model to determine the expected return of a stock, the estimation of beta is necessary.
2.2. Calculation of beta
Beta is the expected relationship between returns on a stock and returns on the market, the beta of a stock can be estimated by quanti ...