Testing CAPM using Markov switching model: the case of coal firms

Turhan Korkmaz, Emrah Çevik, Elif Birkan and Nesrin Özataç

MPRA Paper from University Library of Munich, Germany

Abstract: In this study, the relation between the coal firms that are traded in New York Stock Exchange and S&P500 index is analyzed. The return of the coal firms and the market return are analyzed by using traditional CAPM and two-state Markov 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.

Keywords: Coal Firms; CAPM; Markov Switching Model (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Date: 2010, Revised 2010
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Published in Economic Research-Ekonomska Istraživanja 2.23(2010): pp. 44-59

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Journal Article: Testing Capm using Markov Switching Model: The Case of Coal Firms (2010)
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