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

Jiayi Xie ()
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Jiayi Xie: Lanzhou University, School of Economics

A chapter in Proceedings of the 2024 3rd International Conference on Economics, Smart Finance and Contemporary Trade (ESFCT 2024), 2024, pp 53-62 from Springer

Abstract: 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.

Keywords: Capital Asset Pricing Model (CAPM); Risk-Return Analysis; Chinese Energy Companies; Market Risk; Investment Valuation (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-548-5_8

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DOI: 10.2991/978-94-6463-548-5_8

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