Capital Asset Pricing Model and Stochastic Volatility: A Case Study of India

Demir E., Fung K. W. T., Lu Z.

EMERGING MARKETS FINANCE AND TRADE, cilt.52, sa.1, ss.52-65, 2016 (SSCI) identifier identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 52 Sayı: 1
  • Basım Tarihi: 2016
  • Doi Numarası: 10.1080/1540496x.2015.1062302
  • Dergi Adı: EMERGING MARKETS FINANCE AND TRADE
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.52-65
  • İstanbul Üniversitesi Adresli: Evet

Özet

The existing literature demonstrates that under a general equilibrium model, the performance of the Capital Asset Pricing Model (CAPM) can be improved significantly by using conditional consumption and market return volatilities as factors. This article tests the validity of these factors explaining stock return differences using a less developed country (India) as a case study. While the earlier studies used panel data to test CAPM, we use portfolios sorted by size and book-to-market equity (BE/ME) ratio. We found that conditional volatility has a limited effect on firms with large capitalization but a significant impact on small-growth and small-value firms.