Risk-Return Tradeoff: Evidence of Capital Assets Pricing Model

Subject Areas : Journal of Investment Knowledge

Roohollah Farhadi ¹ , Ali Saghafi ² , Mohammad Taghi Taghavifard ³

1 - دانشجوی دکتری مدیریت مالی دانشگاه علامه طباطبائی
2 - استاد دانشگاه علامه طباطبائی
3 - دانشیار دانشگاه علامه طباطبائی

Received: 2015-08-14 Accepted : 2015-12-10 Published : 2015-12-22

Keywords: Capital Assets Pricing Model, Beta, Ex post facto studies, two stage regression, unique risk,

Abstract :

In this research, return and risk tradeoff examined using standard form of Capital Assets Pricing Model (CAPM) in Tehran Securities Exchange (TSE). Using a methodology related to the field of Ex post facto studies in financial researches, OLS and Quantile regression model was used for test of CAPM. Results of running (linear and Quantile) two stage regression show that beta as systematic risk proxy cannot explain excess returns difference. Results show also unique risk can explain excess returns, although relation of unique risk and excess return is variant in different quartile of returns. As a conclusion, it can be stated that at least using of TSE Index as proxy of market portfolio, CAPM model does not explain stock prices.

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