Risk and return nexus in Malaysian stock market: Empirical evidence from CAPM
AbstractThis paper examines the applicability of CAPM in explaining the risk-return relation in the Malaysian stock market for the period of January 1995 to December 2006. The test, using linear regression method, was carried out on four models: the standard CAPM model with constant beta (Model I), the standard CAPM model with time-varying beta (Model II), the CAPM model conditional on segregating positive and negative market risk premiums with constant beta (Model III), as well as the CAPM model conditional on segregating positive and negative market risk premiums with time varying beta (Model IV). Empirical results indicate that both the standard CAPM models (Model I and Model II) are statistically insignificant. However, the CAPM models conditional on segregating positive and negative market risk premiums (Model III and Model IV) are statistically significant. In addition, this study also discovers that time varying beta provides better explanatory power.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 12355.
Date of creation: 2008
Date of revision:
Stock market; CAPM; time-varying beta;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
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