Beta and returns revisited: Evidence from German stock market

Elsas, Ralf; El-Shaer, Mahmoud und Theissen, Erik (2003): Beta and returns revisited: Evidence from German stock market. In: Journal of International Financial Markets, Institutions and Money, Bd. 13, Nr. 1: S. 1-18

Abstract

Traditional tests of the CAPM following the Fama and MacBeth (J. Political Economy 81 (1973) 607) procedure are tests of the joint hypotheses that there is a relationship between beta and realized return and that the market risk premium is positive. The conditional test procedure developed by Pettengill et al. (J. Financial Quantitative Analysis 4 (1995) 101) allows to independently test the hypothesis of a relation between beta and realized returns. Monte Carlo simulations show that the conditional test reliably identifies this relation. In an empirical examination for the German stock market we find a significant relation between beta and return. Previous studies failed to identify this relationship probably because the average market risk premium in the sample period was close to zero. Our results provide a justification for the use of betas estimated from historical return data by portfolio managers.

• Dokumententyp: Zeitschriftenartikel
• Keywords: Capital asset pricing model, Market risk premium, Beta and return
• Fakultät: Betriebswirtschaft > Institut für Finance und Banking
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• ISSN: 10424431
• Sprache: Englisch