The explanation of risk and expected rate of return by using of Conditional Downside Capital Assets Pricing Model

Subject Areas : Financial Knowledge of Securities Analysis

Received: 2008-10-18 Accepted : 2009-01-13 Published : 2008-12-21

Keywords: Risk premium, Expected rate of return, Conditional Downside&#x0D, &#x0D, Capital, Conditional Capital Assets Pri, Downside Capital Assets Pricin, Capital Assets&#x0D, &#x0D, Pricing Mode,

Abstract :

In capital market ,the investor gets the return as he experiences therisk. To compare the risk and to evaluate the expected rate of return,he usually uses the models such as Sharp and Estrada with thecalculation of traditional beta and downside beta. The findings ofthis research show the inefficiency of both models in Tehran StockExchange. The researches suggested model is the conditionaldownside capital asset pricing model(CD-CAPM).The recentresearch is a kind of applied once. It is considered as correlationresearch. Its statistical population is among eighty five companiesin twenty three industrial groups from 2003to 2007. This researchfindings show risk premium is determining factor in the explainingof investors the expected rate of return variance. There is aconditional relationship between downside beta and the expectedrate of return. So it must be noticed to the market direction forexplaining the relationship between risk and return .