Beta and returns revisited : evidence from the German stock market

  • Traditional tests of the CAPM following the Fama / MacBeth (1973) 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 / Sundaram / Mathur (1995) 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.

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Author:Ralf Elsas, Mahmoud El-Shaer, Erik TheissenORCiDGND
Parent Title (German):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 47
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (47)
Publisher:Johann-Wolfgang-Goethe-Universität, Frankfurt am Main, Fachbereich Wirtschaftswissenschaften
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:1999
Year of first Publication:1999
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2020/08/31
Tag:Market risk premium
Beta and return; Capital Asset Pricing Model
GND Keyword:Deutschland; Capital-Asset-Pricing-Modell; Kapitalertrag; Betafaktor; Aktienmarkt; Risikoprämie; Schätzung; Geschichte 1960-1995
Page Number:34
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht