Conditional CAPM and an Application on the ISE

Yalcin Karatepe, Elif Karaaslan and Fazil Gokgoz

Istanbul Stock Exchange Review, 2002, vol. 6, issue 21, 21-36

Abstract: In the empirical studies carried out on standard CAPM, widely used in finance literature, it has been argued that static CAPM could not entirely explain the portfolio returns. One of the assumptions for one period application is that the beta coefficients of assets are assumed to be constant over time. However, in a dynamic world the expected returns and betas deviate over time. In this study, returns of ISE-30 securities have been estimated by employing conditional CAPM; it has been found that those returns estimated by conditional CAPM were so similar to actual returns. It is concluded that conditional CAPM would present more significant results while forecasting the expected returns of the stocks traded on the ISE, in order for this method to be beneficial for the investors in the portfolio selection process.

Date: 2002
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