Abstract:
This paper evaluates the company performance using the CAPM Based Jensen’s Alpha.
The CAPM of Sharpe (1964), Lintner (1965) and Mossin is a widely used model in modern
Finance to estimate cost of equity and company performance. We carried out our study for
ten plantation companies listed on Colombo Stock Exchange (CSE). We used cost of
equity that is calculated using CAPM to determine the Economic Value Added (EVA).The
EVA measures whether the companies have created shareholders’ value during the
estimating period. We selected the sample period of 2000 to 2005 years and we applied
the monthly ending prices of common stocks of each company for the regression. The
monthly ending prices of All Share Price Index (ASPI) are used as the market proxy. To
estimate the beta, we applied market model. It was found that almost all the companies
have created value for their shareholders during the study period. To measure the market
performance, we calculated Jensen’s alpha for each company and according to Jensen’s
alpha we found that the market performance is not satisfactory in most plantation
companies. These results are important for Corporate Managers undertaking risk
calculations, for fund managers making investment dec
