• Empirical Tests of the Capital Asset Pricing Model (CAPM) Using Data From New York Stock Exchange Market

    Author(s):
    Habib Abdulkarim (see profile)
    Date:
    2012
    Subject(s):
    Economics and literature
    Item Type:
    Article
    Tag(s):
    Literature and economics
    Permanent URL:
    http://dx.doi.org/10.17613/dhey-gh96
    Abstract:
    This study examines the validity of the Capital Assets Pricing Model (CAPM) using monthly and weekly data on 780 stocks from the New York Stock Exchange Market for period of March,1992 to May, 2012, under the traditional first-pass/second-pass methodology. Comparative analysis of results is made between equally-weighted and timevarying value weighted portfolios. The study also examines differences in results of the test of the CAPM between the static and the Rolling Ordinary Least Squared (OLS) techniques, when applied in estimating the betas for the purpose of testing the model. We find that results from tests of the CAPM using the first-pass/second-pass technique, are both sensitive to number of observations used as sample and also to the portfolio construction methodology adopted. It is also found that the static OLS methodology explains more about risk premium than the rolling OLS methodology. In consistency with the CAPM predictions, both the static and rolling OLS methodologies provide evidence that non-systematic risks command no premium. Also the Security Market Line (SML) estimation for both methodologies provide steeper slope, in contrast with previous studies. However, while the static OLS methodology provides evidence that expected return-beta relationship is linear, the rolling OLS provide some evidence of non-linearity.
    Metadata:
    xml
    Status:
    Published
    Last Updated:
    2 years ago
    License:
    All Rights Reserved

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