The Capital Asset Pricing Model: A New Empirical Investigation

Ali Zarifhonarvar

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: In financial economics, numerous theoretical models explain the relationship between investment risk and return in the capital market, one of the most common being the Capital Asset Pricing Model (CAPM). After reviewing the literature in this area, this study discusses the theoretical background of the CAPM model. After explaining the relationship between systematic corporate risk in different industries, the hypotheses for a positive linear correlation between stock returns and systematic risk and the relation of these coefficients to the CAPM model predictions are tested. Thus, after data sampling to obtain the monthly rate of return of stocks in the Tehran Stock Exchange, the monthly rate of return of the market portfolio and the return on risk-free investment are obtained from April 2008 to March 2013. Finally, it will be shown that the systematic risk variable and its square are also crucial to explaining stock return fluctuations. A nonlinear quadratic correlation is confirmed between the rate of return and systematic risk in the stock data of companies sampled from the obtained sample of the Tehran Stock Exchange.

Keywords: CAPM; Beta; Stock Market; Premium; Risk (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:268396

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