Evaluating Risk-Return Dynamics in Chinese Energy Companies: An Application of the Capital Asset Pricing Model

DOI

10.2991/978-94-6463-548-5_8How to use a DOI?

Keywords

Capital Asset Pricing Model (CAPM); Risk-Return Analysis; Chinese Energy Companies; Market Risk; Investment Valuation

Abstract

This paper examines the risk-return tradeoffs for major Chinese energy companies—China Petroleum & Chemical Corporation (SINOPEC), GD Power Development, and China Yangtze Power Co., Ltd.—using the Capital Asset Pricing Model (CAPM) to analyze daily returns from January 4, 2021, to December 29, 2023. The study evaluates the correlation between the expected rate of return and the market risk, as indicated by the beta coefficients, across these companies. Our findings reveal that these companies also have significant alpha (excess returns), which suggest that distinctive corporate strengths such as technological leadership, efficient cost management, and strategic market positioning contribute significantly to excess returns. These factors are essential for evaluating the overall value and investment potential of these entities. However, the study also identifies limitations due to external macroeconomic influences and discrepancies between estimated and actual beta values, affecting the CAPM’s predictive accuracy. Future research is encouraged to integrate macroeconomic factors and dynamic beta estimation to refine risk and return assessments. This study underscores the importance of adapting financial models to accommodate the specific dynamics of rapidly evolving markets like China’s energy sector.

Copyright

© 2024 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Jiayi Xie
PY  - 2024
DA  - 2024/10/21
TI  - Evaluating Risk-Return Dynamics in Chinese Energy Companies: An Application of the Capital Asset Pricing Model
BT  - Proceedings of the 2024 3rd International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2024)
PB  - Atlantis Press
SP  - 53
EP  - 62
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-548-5_8
DO  - 10.2991/978-94-6463-548-5_8
ID  - Xie2024
ER  -