Measuring the Risk and Return Relationship of Manufacturing Sector in Colombo Stock Exchange

Abstract

This paper attempts to test fundamental theory of finance which is risk and return relationship. For this purpose the manufacturing sector listed in Colombo Stock Exchange was selected. The researchers used marked model to measure the risk factor of the selected companies. The sample period was 2000 to 2006. As the proxy to calculate market return for the market model the ASPI was applied. The finding was the beta that is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole is not stable through time. Another interesting finding is the systematic risk component is below the market risk of most companies. Therefore beta is not a proper indicator of company systematic risk factor. These findings will be important to various stakeholders especially for prospect investors, share brokers, managers and regulatory bodies etc.