Capital asset pricing models and Russian stock market. Part 1. CAMP Empirical Testing

Alexander Bukhvalov () and Vitaly L. Okulov

No 840, Working Papers from Graduate School of Management, St. Petersburg State University

Abstract: Sharpe-Lintner's and Black's CAPM versions as prevailing CAPM versions and their applicability in the Russian stock market are reviewed. Demonstration of applicability of the CAPM in the Russian stock market would imply that investors' behavior is rational and the Russian stock market is effective. Demonstration of Russian market's effectiveness would signify the possibility of receiving independent market valuation for Russian companies based on the available market data. CAPM concepts about asset pricing are tested using strictly econometric methods. Thorough preparation of the source data is crucial for the testing process as the input data should be in compliance with the CAPM initial assumptions. Unfavorable results obtained from the testing of both CAPM versions could imply either irrelevance of the CAPM main assumptions for the Russian stock market or Russian market's ineffectiveness (irrational investor behavior from the risk-return point of view). Issues related to possible discrepancies between the source data and basic assumptions of both CAPM versions are discussed. Possible CAPM modification to account for irrational investor behavior is discussed in Part II.

Date: 2006
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