Capital Asset Pricing Model and International Research Journal
International Research Journal of Finance and Economics ISSN 1450-2887 Issue 4 (2006) © EuroJournals Publishing, Inc. 2006 http://www.eurojournals.com/finance.htm
Testing the Capital Asset Pricing Model (CAPM): The Case of the Emerging Greek Securities Market
Grigoris Michailidis University of Macedonia, Economic and Social Sciences Department of Applied Informatics Thessaloniki, Greece E-mail: mgrigori@uom.gr Tel: 00302310891889 Stavros Tsopoglou University of Macedonia, Economic and Social Sciences Department of Applied Informatics Thessaloniki, Greece E-mail: tsopstav@uom.gr Tel: 00302310891889 Demetrios Papanastasiou University of Macedonia, Economic and Social Sciences Department of Applied Informatics Thessaloniki, Greece E-mail: papanast@uom.gr Tel: 00302310891878 Eleni Mariola Hagan School of Business, Iona College New Rochelle Abstract The article examines the Capital Asset Pricing Model (CAPM) for the Greek stock market using weekly stock returns from 100 companies listed on the Athens stock exchange for the period of January 1998 to December 2002. In order to diversify away the firm-specific part of returns thereby enhancing the precision of the beta estimates, the securities where grouped into portfolios. The findings of this article are not supportive of the theory’s basic statement that higher risk (beta) is associated with higher levels of return. The model does explain, however, excess returns and thus lends support to the linear structure of the CAPM equation. The CAPM’s prediction for the intercept is that it should equal zero and the slope should equal the excess returns on the market portfolio. The results of the study refute the above hypothesis and offer evidence against the CAPM. The tests conducted to examine the nonlinearity of the relationship between return and betas support the hypothesis that the expected return-beta relationship is linear. Additionally, this paper investigates whether the CAPM adequately captures all-important
Testing the Capital Asset Pricing Model (CAPM): The Case of the Emerging Greek Securities Market
Grigoris Michailidis University of Macedonia, Economic and Social Sciences Department of Applied Informatics Thessaloniki, Greece E-mail: mgrigori@uom.gr Tel: 00302310891889 Stavros Tsopoglou University of Macedonia, Economic and Social Sciences Department of Applied Informatics Thessaloniki, Greece E-mail: tsopstav@uom.gr Tel: 00302310891889 Demetrios Papanastasiou University of Macedonia, Economic and Social Sciences Department of Applied Informatics Thessaloniki, Greece E-mail: papanast@uom.gr Tel: 00302310891878 Eleni Mariola Hagan School of Business, Iona College New Rochelle Abstract The article examines the Capital Asset Pricing Model (CAPM) for the Greek stock market using weekly stock returns from 100 companies listed on the Athens stock exchange for the period of January 1998 to December 2002. In order to diversify away the firm-specific part of returns thereby enhancing the precision of the beta estimates, the securities where grouped into portfolios. The findings of this article are not supportive of the theory’s basic statement that higher risk (beta) is associated with higher levels of return. The model does explain, however, excess returns and thus lends support to the linear structure of the CAPM equation. The CAPM’s prediction for the intercept is that it should equal zero and the slope should equal the excess returns on the market portfolio. The results of the study refute the above hypothesis and offer evidence against the CAPM. The tests conducted to examine the nonlinearity of the relationship between return and betas support the hypothesis that the expected return-beta relationship is linear. Additionally, this paper investigates whether the CAPM adequately captures all-important
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