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Does the Conditional CAPM Work? Evidence from the Istanbul Stock Exchange

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Author Info

  • Atakan Yalcýn

    ()
    (Koc University)

  • Nuri Ersahin

    (Koc University)

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    Abstract

    This paper tests whether the conditional CAPM accurately prices assets utilizing data from the Istanbul Stock Exchange (ISE) over the time period from February 1997 to April 2008. In our empirical analysis, we closely follow the methodology introduced in Lewellen and Nagel (2006). Our results show that the conditional CAPM fairs no better than the static counterpart in pricing assets. Although market betas do vary significantly over time, the intertemporal variation is not nearly large enough to drive average conditional alphas to zero.

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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1025.pdf
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    Bibliographic Info

    Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1025.

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    Length: 34 pages
    Date of creation: Aug 2010
    Date of revision:
    Handle: RePEc:koc:wpaper:1025

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    Keywords: Conditional CAPM;

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    1. Ferson, Wayne E & Harvey, Campbell R, 1991. "The Variation of Economic Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 385-415, April.
    2. Ferson, Wayne E & Harvey, Campbell R, 1993. "The Risk and Predictability of International Equity Returns," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 527-66.
    3. Campbell R. Harvey, 1994. "Predictable Risk and Returns in Emerging Markets," NBER Working Papers 4621, National Bureau of Economic Research, Inc.
    4. Dimson, Elroy, 1979. "Risk measurement when shares are subject to infrequent trading," Journal of Financial Economics, Elsevier, vol. 7(2), pages 197-226, June.
    5. Harvey, Campbell R., 1989. "Time-varying conditional covariances in tests of asset pricing models," Journal of Financial Economics, Elsevier, vol. 24(2), pages 289-317.
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