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A Test of the Validity of Capital Asset Pricing Model in Istanbul Stock Exchange

Author

Listed:
  • Rumeysa BILGIN

    () (Fatih University, Institute of Social Sciences, Department of Management)

  • Eyup BASTI

    () (Fatih University, Faculty of Economics and Administrative Sciences, Department of Management)

Abstract

CAPM is one of the subjects that constitute fundamentals of modern finance theory. Although the research that test validity of CAPM give conflicting results, CAPM is widely used especially in portfolio investments and capital budgeting. In this study, we test validity of the CAPM in Istanbul Stock Exchange (ISE) by utilizing Fama and McBeth’s (1973) unconditional testing approach. Our results show that there is no meaningful relationship between betas and risk premiums; therefore CAPM is not valid in ISE over the sample period.

Suggested Citation

  • Rumeysa BILGIN & Eyup BASTI, 2011. "A Test of the Validity of Capital Asset Pricing Model in Istanbul Stock Exchange," EuroEconomica, Danubius University of Galati, issue 30, pages 98-108, November.
  • Handle: RePEc:dug:journl:y:2011:i:30:p:98-108
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    References listed on IDEAS

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    1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    2. William F. Sharpe, 1963. "A Simplified Model for Portfolio Analysis," Management Science, INFORMS, vol. 9(2), pages 277-293, January.
    3. Nikolaos G. Theriou & Vassilios P. Aggelidis & Dimitrios I. Maditinos & Željko Ševic, 2010. "Testing the relation between beta and returns in the Athens stock exchange," Managerial Finance, Emerald Group Publishing, vol. 36(12), pages 1043-1056, October.
    4. Michael C. Jensen, 1972. "Capital Markets: Theory and Evidence," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 357-398, Autumn.
    5. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    6. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
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