Validity of Capital Assets Pricing Model (CAPM) (Empirical Evidences from Amman Stock Exchange)

Abstract

The purpose of this study is to test the validity of CAPM in Amman Stock Exchange (ASE) during the period (2010 – 2014), which was divided into three sub periods. We used monthly returns of 60 stocks of Jordanian companies listed in ASE. Black, Jensen and Scholes (1972) and Fama and MacBeth (1973) methods were used to test the CAPM in different study sub-periods. The analysis results showed that higher risk (beta) is not associated with higher levels of return, which violated the CAPM assumption. Results of the study leads to contradict the theory’s assumption that beta coefficient is a good toll to predict the relationship between risk and return; hence the beta coefficient of some portfolios in the three sub periods was not significant. In addition, the results of testing SML violated the CAPM assumption in the three sub periods that, the slope should be equal to the average risk premium. Finally, tests of nonlinearity of the relationship between return and betas validated the CAPM hypothesis, that the expected return-beta relationship is linear. Depending on the above results, we couldn’t find conclusive evidence in support of CAPM in ASE.

Investigating the Relationship Between Environmental, Social, and Governance Factors and the Capital Asset Pricing Model

“…Alqisie and Alqurran conducted a study to assess the accuracy of the Capital Asset Pricing Model (CAPM) in the Amman Stock Exchange from 2010 to 2014 [21]. Their findings demonstrated that an elevated level of risk (beta) did not correspond to an increased level of return, hence challenging the assumption of the CAPM.…”

Validity of Capital Asset Pricing Model(CAPM)Empirical Research on the Panel Industry in China

“…The stock portfolio is divided according to the β coefficient of each stock. Alqisie, A., & Alqurran, T. [5] let the stock portfolio be divided by ordering the individual β coefficient of each stock in the sample, and each group contains the same number of stocks. In a similar way, we sorted the β coefficient of each stock from small to large, and divided the stock portfolio into a group of 4 stocks.…”

Evidence for and against the validity of the capital asset Pricing model

“…gde su: 𝑟̅ 𝑖 − 𝑟̅ 𝑓 -prosečna riziko premija na aktivu 𝑖, 𝛽 ̃𝑖procenjeni beta koeficijent aktive 𝑖. 1 Da bi CAPM model dokazao svoju apsolutnu ispravnost parametar 𝛾 0 ne bi trebalo statistički značajno da se razlikuje od nule, parametar 𝛾 1 bi trebalo da bude pozitivan i jednak tržišnoj ceni rizika 𝑟̅ 𝑚 − 𝑟̅ 𝑓 , koefici- 1 Procenjeni beta koeficijent se koristi umesto pravog beta koeficijenta, jer je pravi beta koeficijent nepoznat. jent beta bi trebalo da bude jedini faktor koji objašnjava stopu prinosa rizične aktive i mora postojati linearna zavisnost ostvarenog prinosa i sistemskog rizika merenog beta koeficijentom.…”