Testing the Traditional CAPM and MCAPM on Tehran Stock Exchange

Document Type: Research Paper

Authors

1 Faculty of Social Sciences & Economics, Alzahra University, Tehran, Iran

2 PhD student of Financial Management, Islamic Azad University, Iran

3 Department of Management, Payame Noor University, Iran

Abstract

The purpose of this paper is to empirically test and evaluate the possibility of using the traditional Capital Asset Pricing Model (CAPM) and the Modified Capital Asset Pricing Model (MCAPM) in the Tehran Stock Exchange. Traditional CAPM by Sharpe-Linter (1965) as one of the ways in which investors can help explain the risk and return on investment offered by CAPM model to models of different MCAPM suggested by the Santosh Koirala (2015).Therefore, to achieve the desired objective, the research models using monthly returns of firm 96 (2009 to 2015) and test based on index of cash and capital gain returns. The results indicate that the explanatory power MCAPM more about stock returns compared to traditional CAPM in the Tehran Stock Exchange.

Keywords

Main Subjects


[1] Badri, A. & Hashemlo, F. (2012). Examine the explanatory power of CAPM compared to the DCAPM. Applied Research in Financial Reporting, 133-154.

[2] Bagherzadeh, H. & Salem, A.A. (2015). The Intertemporal Relationship between Risk and Return with Dynamic Conditional Correlation and Time -Varying Beta. Financial Research, 17(1), 1-20.

[3] Buchner, A. (2016). Risk-adjusting the returns of private equity using the CAPM and multi-factor extensions. Finance Research Letters, 16, 154-161.

[4] Chen, M. H. (2003). Risk and return: CAPM and CCAPM. The Quarterly Review of Economics and Finance, 43(2), 369-393.

[5] Da, Z., Guo, R. J., & Jagannathan, R. (2012). CAPM for estimating the cost of equity capital: Interpreting the empirical evidence. Journal of Financial Economics, 103(1), 204-220.

[6] Pedro Jr, B. (2016). Alternative Methodologies for Testing CAPM in the Philippine Equities Market. Philippine Management Review, 11(1).

[7] Foroghnejad, H., Purian.R. & Mirzaee, M. (2013). The relationship between risk and return: Compare the traditional capital asset pricing model with consumption-based capital asset pricing model. Journal of Securities Exchange, 23, 76-92.

[8] Gregoriou, A., & Ioannidis, C. (2006). Generalized method of moments and value tests of the consumption-capital asset pricing model under transactions. Empirical Economics, 32(1), 19-39.

[9] Hejazi, R, and Gholamhoseini, M. (2009). Investigate the possibility of using the capital asset pricing model in the Tehran Stock Exchange. Journal of financial accounting and auditing, 65-95.

[10]Kim, S. H., Kim, D., & Shin, H. S. (2012). Evaluating asset pricing models in the Korean stock market. Pacific-Basin Finance Journal, 20(2), 198-227. 

[11]Koirala, S. (2015). Towards modified capital asset pricing model: with evidence from nepal stock exchange. Asian Journal of Business and Economics, 5(5.1).

[12]Liu, W., Luo, D., & Zhao, H. (2016). Transaction costs, liquidity risk, and the CCAPM. Journal of Banking & Finance, 63, 126-145.

[13]Mujtahidzade, V., & Emami, S. (2010). Compared with the capital asset pricing model with adjusted Model for inflation situation. Financial Accounting Researches, 6, 109-124.

[14]Rahnama Roodposhti, F., & Amirhosseini, Z. (2010) explain the Capital Asset Pricing: A Comparative models. Review of Accounting and Auditing, 68-49.

[15]Raei, R., & Talangy, A. (2003). Advanced Investment Management. First Edition.

[16]Ray, S., Savin, N. E., & Tiwari, A. (2009). Testing the CAPM revisited. Journal of Empirical Finance, 16(5), 721-733.

[17]Talaneh, A., & Ghasemi, A. (2011). Experimental test and compare the capital asset pricing model and arbitrage pricing theory in Tehran Stock Exchange. Journal of Securities Exchange, 14, 5-28.

[18]Tavangar, A., & Khosraviani, M. (2011). Test the model D-CAPM CAPM model to explain the relationship between risk and return. Financial knowledge of securities analysis, 9, 25-42.

[19]Tehrani, R., Goudarzi, M and Moradi, H. (2006). Risk and Return: CAPM model in the Model CCAPM in Tehran Stock Exchange. Economic Research, 44, 61-82.