The Conditional Relationship Between Beta and Returns: A Reassessment

Mark C. Freeman and Cherif Guermat

Journal of Business Finance & Accounting, 2006, vol. 33, issue 7‐8, 1213-1239

Abstract: Abstract: Several recent empirical tests of the Capital Asset Pricing Model have been based on the conditional relationship between betas and market returns. This paper shows that this method needs reconsideration. An adjusted version of this test is presented. It is then demonstrated that the adjusted technique has similar, or lower, power to the more easily implemented CAPM test of Fama and MacBeth (1973) if returns are normally distributed.

Date: 2006
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https://doi.org/10.1111/j.1468-5957.2006.00590.x

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