Testing Capm using Markov Switching Model: The Case of Coal Firms

Turhan Korkmaz, Emrah Çevik, Elif Birkan and Nesrin ÖzataÇ

Economic Research-Ekonomska Istraživanja, 2010, vol. 23, issue 2, 44-59

Abstract: In this study, the relation between the coal firms that are traded in New York Stock Exchange and S&P500index is analyzed. The return of the coal firms and the market return are analyzed by using traditional CAPM and two-stateMarkov regime switching CAPM (MS-CAPM). According to the Likelihood Ratio test, two-state regime MS-CAPM gives better results and indicates a non-linear relation between return and risk. It is found that beta shows variability in regard to low and high volatile periods making linear CAPM to provide deviated results.1

Date: 2010
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DOI: 10.1080/1331677X.2010.11517411

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