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Evaluating Extensions to CAPM: The Predictive Power of Market Capitalization and Turnover in the Australian Stock Market

In: Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025)

Author

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  • Yunxin Liu

    (University of Melbourne, Faculty of Arts)

Abstract

The Capital Asset Pricing Model (CAPM) has faced empirical and theoretical criticisms and extensions to improve its explanatory power by incorporating additional characteristics have been widely tested over the past decades. This study examines the predictive impact of stock trading turnover and market capitalization as extensions to the traditional Capital Asset Pricing Model (CAPM) within the Australian stock market. It uses panel data collected from eighteen companies across nine Global Industry Classification Standard sectors from January 2021 to November 2024. The CAPM adopted the Random-Effect model, and its extension is regressed under the Fixed-Effects framework according to the Hausman Test. Results suggest the extended CAPM slightly outperforms the traditional model. Stock trading turnover is statistically insignificant and is likely attributed to the high efficiency of the Australian market and the sample predominantly comprising large-cap firms. Market capitalization, on the other hand, significantly explains the model but its overall contribution remains minimal. This study contributes to the ongoing discourse by offering insights into the role of firm-specific market-related factors in asset pricing.

Suggested Citation

  • Yunxin Liu, 2025. "Evaluating Extensions to CAPM: The Predictive Power of Market Capitalization and Turnover in the Australian Stock Market," Advances in Economics, Business and Management Research, in: Maizaitulaidawati Md Husin (ed.), Proceedings of the 2025 International Conference on Financial Risk and Investment Management (ICFRIM 2025), pages 607-616, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-748-9_68
    DOI: 10.2991/978-94-6463-748-9_68
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