TESTING THE CAPITAL ASSET PRICING MODEL AFTER CURRENCY REFORM: THE CASE OF ZIMBABWE STOCK EXCHANGE

Transcription

1 TESTING THE CAPITAL ASSET PRICING MODEL AFTER CURRENCY REFORM: THE CASE OF ZIMBABWE STOCK EXCHANGE Batsirai Winmore Mazviona 1 ABSTRACT The Caital Asset Pricing Model (CAPM) endeavors to exlain the relationshi between risk and the exected rate of return on caital markets. It offers owerful and intuitively leasing redictions about how to quantify risk. The model has been subject to various tests since its incetion. Most of the earlier studies are in suort of the model whereas recent studies have rovided evidence against it and have revealed that beta alone is not a suitable determinant of asset ricing and that a number of other factors could exlain the cross-section of returns. This article focuses on examining the ability of the CAPM beta to exlain the variation in stocks returns. The study was carried out for the eriod 19 February 2009 to 31 December 2012 for 65 stocks listed on the Zimbabwe Stock Exchange (ZSE). Time series regression and cross-sectional regression were used to test the relationshi between exected returns and risk. Portfolios were used rather than individual stocks because the use of individual stock returns for the estimation of beta coefficients introduces an estimation error in the values of beta, as well as, introducing a bias in the regression coefficients. The validity of the CAPM was further tested statistically by using the t-test. The results showed that the high beta-high returns relationshi was not exhibited by the stocks data and the sloe of the Security Market Line (SML) was not equal to the market risk remium. CAPM did not fully hold although there was a linear relationshi between returns and beta coefficients. In addition, it was noted that non-systematic risk had no effect on exected returns. Keywords: CAPM, stock market, beta, ortfolios. 1 Deartment of Insurance and Actuarial Science, National University of Science and Technology, P.O Box AC 939 Ascot, Bulawayo, Zimbabwe, winmoreb@gmail.com Tel: Ext 2138 INTRODUCTION The ricing of securities like bonds and equities that trade in the caital market is one of the most imortant areas of finance and investments and greatly affects the economic life of both institutional investors and individuals. This study focuses on the ricing of the industrial stocks that are ublicly listed on the ZSE. Individuals and Institutional investors are directly or indirectly involved in the ZSE. Individuals might invest their surlus income directly in the stock market or indirectly through investment funds and mutual funds. Institutional investors, on the other hand, handle large amounts of money that they invest on the stock market on behalf of their investors in ursuit of secific objectives. As individuals and institutions trade in the stock market they are faced with a set of issues, for examle, how much to invest in a articular stock, which articular stock to invest in and most imortantly at what rice should they buy or sell that stock. Individuals need some benchmark or criteria which they can use to ascertain if their funds are being well invested. Institutional investors also need some benchmark to measure the erformance of their fund managers. On the other hand, comanies who wish to finance their new rojects by issuing out new stock need to know at what rice they should issue out the new stock, and the rice at which that new stock can be absorbed in the stock market affects their decision on whether to continue or not with the new investment roject (Bodie, Kane and Marcus, 2003). The CAPM, which has been subject to many emirical tests since incetion, addresses this roblem through relating the exected rate of return from a security to its systematic risk. It makes some assumtions about the behavior of the investors and the oerations of the caital market, and basing on those assumtions derives a secific linear relationshi between the exected rate of return and the risk. This relationshi according to CAPM should hold for every individual security or any combination of individual securities in order for the caital market to be in equilibrium (Bodie, Kane and Marcus, 2003). The CAPM has layed an imortant role in modern finance and, in articular, in modern caital theory. It is still being extensively used in evaluating the erformance of managed ortfolios and assets and estimating the cost of caital for firms even though, it is about five decades old. The model introduces easy mechanism for cororate managers and investors to evaluate their investments. All that investors and cororate managers need to do, as indicated by the model, is to evaluate and comare the exected return to the required return. If the exected result is otherwise unfavourable, it is necessary to call off intentions for otential investment in the articular asset. CAPM offers owerful and intuitively leasing redictions about how to quantify risk and the relationshi between exected return and risk (Fama and French, 1992). The model relates the exected rate of return of an individual asset or a ortfolio of assets to a measure of its systematic risk as measured by beta. The beta of an asset or ortfolio of assets catures that asect of investment risk which cannot be eliminated by diversification. LITERATURE REVIEW The Share-Lintner model builds uon the ortfolio theory introduced by Markowitz and Tobin 1959 and 1958 resectively, which in turn is built on the exected utility model of (Von Nuemann and Morgenstern, 1953). Portfolio theory also known as Markowitz s model is concerned with how an investor should allocate his wealth among the different assets available in the market, given that he is a one-eriod utility maximiser. In the Markowitz s model, an investor selects a ortfolio at the beginning of a time eriod that roduces a stochastic return at the end of that time eriod. The Markowitz s model assumes investors are 22

2 risk averse and they are only concerned with the first two moments of the distribution of their one-eriod investment returns, that is, the mean and the variance, when selecting among ortfolios. As a result, investors select mean-variance efficient ortfolios, that is ortfolios with minimum ortfolio variance for a given ortfolio return and with the maximum ortfolio return for a given ortfolio variance. The Share-Lintner model then derives the equilibrium relationshi between exected return and risk for assets and ortfolios using the characteristics of the investor wealth allocation decision. The Markowitz s model rovides an algebraic condition on asset weights in mean-variance efficient ortfolios. The CAPM converts this algebraic statement into a testable forecast about the relation between risk and exected return by identifying a ortfolio that must be efficient if asset rices are to clear the market of all assets (Javid, 2008). Ansari, Naeem and Zubairi (2005) stated that, the market rewards risk bearing, according to CAPM, since eole are generally risk averse and in order to induce eole to hold the total amount of risky assets in a financial system the risk remium for the aggregate of all risky assets must be ositive. Investors are comensated with a higher exected return only by acceting systematic risk, that is, the market rewards efficient risk bearing. In articular, it suggests that higher-beta assets or ortfolios are exected to give higher exected returns than lower-beta assets or ortfolios because they are more risky (Elton and Gruber, 1995). The comonent of the asset s risk that is uncorrelated with the market can be diversified away and does not demand a risk remium. Intuitively, in a rational and cometitive market investors diversify all non-systematic risks otherwise this would force them out of the market. If, on the contrary, the CAPM does not hold, then the rationality of the asset s markets will have to be reconsidered. Early studies were largely suortive of the Share- Lintner CAPM, stating a linear relationshi between return and systematic risk as measured by beta which is a constant. Early studies of (Blume, 1970; Black, Jensen and Scholes, 1972; Blume and Friend, 1973; Fama and MacBeth, 1973) on testing CAPM reorted evidence consistent with the mean-variance efficiency of the market ortfolio. Chen (2003) investigated the alicability of CAPM on the Taiwan Stock market and found evidence suorting the use of CAPM and reorted that the relationshi between stock returns and beta is significant and the coefficient of determination of the regression is high for all the sectors under study. Canegrati (2008) studied the relationshi between the sign of market returns and beta coefficients within six sectors of stocks listed on the Milan Stock Exchange and the evidence showed that the intercet was equal to zero, suorting CAPM theory which assumes that the only relevant variable in the regression is the excess return on the market ortfolio. As a consequence of this, it was concluded that betas comletely cature the cross-sectional variation of exected excess returns and can be seen as a measure of asset risk. Tests using a fifteen-year samle of monthly returns examined the relation between the sign of market returns and beta coefficients and detected existence of an ex-ost ositive (when the market is at an u state) and negative (when the market is at a low state) relationshis between returns and betas. Fama and French (2004) stated that emirical work since the late 1970s challenged the Share-Lintner CAPM. In articular, evidence mounts that much of the cross-sectional variation in assets return is unrelated to market beta. Yang and Donghui (2006) conducted a study on 100 comanies listed on the Shanghai Stock Exchange during the eriod 2000 to 2005 and they concluded that CAPM does not give a valid descrition of the stock market. The exected returns and betas were linearly related with each other during the entire eriod as suosed by the CAPM. However, the results offered evidence against CAPM hyothesis for the intercet, which should equal zero and the sloe that should equal to the average market risk remium. Michailidis et al (2006) rovided evidence against the CAPM on data of 100 comanies listed on the Athens Stock Exchange for the eriod of 1998 to The tests refuted the CAPM s rediction that the intercet should equal zero and the sloe should equal the excess returns on the market ortfolio. Yang and Donghui (2006) conducted a test on 100 comanies listed on the Shanghai Stock Exchange during the eriod 2000 to 2005 and concluded that CAPM does not give a valid descrition of the Chinese Stock Market. The results offered evidence against CAPM hyothesis for the intercet, which should equal zero and the sloe that should equal to the average risk remium. However, there was a linear relationshi between the exected returns and betas during the entire eriod. Javid and Ahmad (2008) carried out a test on the Karachi Stock Exchange and they investigated therisk and return relationshi of 49 listed comanies during the eriod July 1993 to December The emirical findings were against the standard CAPM as a model for exlaining asset ricing in the Karachi Stock Exchange. The critical condition of CAPM that there is a ositive trade-off between risk and return was rejected and some role of residual risk was identified in ricing risky assets. In a study by Nikolaos (2009) to test the validity of CAPM it was indicated that it was not valid. However, beta was found to be comatible to the model as it was a significant coefficient for measuring returns. Krish (2010) conducted a study and the objective was to test the validity of CAPM theory in Indian caital market and the stability of beta and found evidence against the CAPM hyothesis as well as the stability of systematic risk. Jecheche (2011) investigated the validity of the CAPM on the ZSE using monthly stock returns of 28 firms considered the most traded for the eriod 2003 to 2008 and the results showed that there is a linear relationshi between return and risk. However, the results were inconsistent with the theory s hyothesis that higher beta stocks yield higher returns and that the sloe of the security market line is the market risk remium and from these findings, Jecheche concluded that the emirical investigation did not fully uhold with the CAPM on the ZSE. CONTRIBUTION TO EMPIRICAL LITERATURE The aer differs from the revious studies carried in that it tests the validity of CAPM on the ZSE after the currency reform (Mazviona and Nyangara, ). DATA The study covers the eriod from 19 February 2009 to 31 December The time eriod was selected because it is the eriod after which the multicurrency system was introduced in the Zimbabwean economy. The selected samle consists of 65 stocks that are included in the ZSE Industrial market index. Each series consists of 201 observations of the weekly closing rices. 23

3 STATEMENT OF HYPOTHESIS The rimary objective of this article is to test the emirical validity of the CAPM on the ZSE under the following hyothesis: H 0 : The CAPM holds on the ZSE. H 1 : The CAPM does not hold on the ZSE. METHODOLOGY FOR TESTING CAPM The methodology adoted in this article is based on (Black, Jensen and Scholes, 1972) which utilize a time series concet to establish the relationshi between risk and return and hence testing the CAPM. The aroach has been used by other researchers that include (Ansari, 2000; Yang, 2006; Michailidis et al, 2006; Jecheche, 2011), it involves forming ortfolios and regressing them on beta. In addition, a test of non-linearity was conducted based on (Fama and Macbeth, 1973). The methodology was motivated by (Miller and Scholes, 1972) who found that analysis of individual security returns to estimate beta coefficients introduced error and bias and therefore the methodology emloyed in this article addresses the issue by analysis of ortfolios. TESTS The samle eriod was 4 years. Due to the short observation eriod, a one year initial estimation eriod was used to estimate the beta of the ortfolios, and a one year testing eriod to comute the results as shown in Table 1. Time series test of the CAPM is based on the time series regressions of ortfolio returns on market return (Black, Jensen and Scholes, 1972) which can be exressed by the equation below: R it Where: R i i mt it..(1) Rit is the rate of return on ortfolio or asset i at time t, Rmt isthe rate of return on the market ortfolio at time t, i is the beta of ortfolioor asset i, it is the is random disturbance term in the regression equation at time t. The intercet i is the estimated exected return by the time series if the market is neutral. PORTFOLIO FORMATION The true beta of stocks must have been used for forming ortfolios, but all the stocks betas were estimated betas and ranking the stocks into ortfolios by estimated betas would have introduced a selection bias. High estimated beta stocks were more likely to have a ositive measurement error in estimating beta. This would have introduced a ositive bias into beta for high beta ortfolios and a negative bias into the estimate of the intercet (Elton and Gruber, 1995). Black, Jensen and Scholes (1972) used a grouing combination method to solve the measurement bias and estimated betas for the revious year and used these in the grouing of the next year ortfolios in order to mitigate statistical errors from the beta estimation. Combining stocks into ortfolios diversifies away most of the firm secific art of returns thereby enhancing the recision of the estimates of beta and the exected rate of return on the ortfolios on securities. This mitigates statistical roblems that arise from measurement error in the beta estimates. The sread in betas across ortfolios is maximized, as well,by grouing stocks into ortfolios so that the effect of beta on return can be clearly examined. The samle eriod was divided into 2 study eriods, with each eriod comrising of 3 years. The first eriod was from 19 February 2009 to 31 December 2011 and the second eriod was from 1 January 2010 to 31 December The outline of the study is shown in Table 1. Table 1: Portfolio Formation, Estimation and Testing Periods Period 1 Period to to 2012 Portfolio formation eriod Initial estimation eriod Testing eriod The first ste was to estimate a beta coefficient for each stock using weekly returns that corresond to each Portfolio Formation Period, 2009 and The beta was estimated by regressing each stock s weekly return against the market index return according to equation 1. Based on the estimated betas, the 65 stocks were groued into 8 ortfolios; of which 7 of them comrised of 8 stocks each and the other ortfolio comrised of 9 stocks. The first ortfolio, that is, ortfolio 1 had stocks with 24

4 the lowest betas and the last ortfolio, that is, ortfolio 8 had stocks with the highest betas. The second ste was to calculate average ortfolio returns of stocks ( R t ) ordered according to their beta coefficients comuted by equation 1 and calculate the ortfolios betas. The ortfolio returns were comuted using the following equation; R t where, i k R it k is the number of stocks included in each ortfolio (k=1 8), is the number of ortfolios (=1 8), Rit is the excess return on stocks that form each ortfolio comrised of k stocks each. The ortfolio betas were calculated using the following equation; R t Where: R i mt it..(2) Rt is the average ortfolio return at time t, is the estimated ortfolio beta. it is random disturbance term in the regression equation at time t. Fama and MacBeth ran a monthly cross-sectional regression of return of the ortfolios on the estimated betas to test the CAPM. Average return of ortfolio is the mean of its return in the defined eriod, and the ortfolio beta is the sloe in the time series regression of the returns of ortfolio R on the market s return R m. The third ste was to estimate the ex-ost Security Market Line (SML) for each Testing Period, that is, 2011 and 2012, by regressing the ortfolio returns for 2011 and 2012 against the ortfolio betas estimated in 2010 and 2011 resectively. The relation examined was; R 0 1.(3) Where: R is the average return on a ortfolio, is beta of ortfolio, is the is random disturbance term in the regression equation. 1 is the market rice of risk, the risk remium for bearing one unit of beta risk, 0 is the zero-beta rate, the exected return on an asset which has a beta of zero. If the CAPM is true, 0 should be greater than zero, the risk free rate, and the sloe of SML, 1, is the market ortfolio s average risk remium. The following equation was used to test for non-linearity between average ortfolio returns and the estimated betas: 2 R (4) According to the CAPM hyothesis, ortfolios returns and its betas are linearly related with each other, that is, 2 should be equal to zero if CAPM is valid. The researcher also examined whether the exected return on assets were determined by systematic risk only and were indeendent of the non-systematic risk, as measured by the residual variance (Bodie, Kane and Marcus, 2003). The following equation was examined; 2 2 R (5) Where: 25

5 2 measures the otential non-linearity of the return, 3 measures the exlanatory ower of non-systemic risk. 2 measures the residual variance of ortfolio return. If the CAPM hyothesis is true, that is, stock returns are determined by systematic risk only, 3 should be equal to zero. The estimated arameters allowed for the testing of a series of hyotheses regarding the CAPM and these are: H 10 : 00 that is, there is a ositive rice of risk in the caital markets (Elton and Gruber, 1995). H 20 : 10, that is, there is a ositive market risk remium in the caital markets. H 30 : 2 0, that is, there are no non-linearities in the security market line. H 40 : 3 0, that is, residual risk does not affect exected returns. DISCUSSION OF RESULTS PORTFOLIO RETURNS AND BETA Average ortfolio returns were calculated using data for 2010 and the ortfolio betas were estimated using equation 2. Table 2 shows the results; Table 2: Portfolio Betas Average returns Beta Standard error Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % From Table 2, ortfolio 8 which had the highest beta value of yielded lower returns of %, whilst ortfolio 6 with a lower beta value of yielded higher returns of 0.197%. The results did not suort the hyothesis resented by CAPM that high beta ortfolios yield higher returns and low beta ortfolios yield lower returns. ESTIMATION OF THE SECURITY MARKET LINE The estimates of beta for 2010 and the average ortfolio returns for 2011 were then used to estimate the Security Market Line according to equation 3. Below is a table showing the results of the cross-sectional regression; Table 3: Statistics of the Estimation of the SML Parameters Standard error t-value -value γ γ was not significantly different from zero since the -value, 0.277, was greater than 0.05 and was not significantly different from zero, since the -value, was greater than According to CAPM hyothesis, should be equal to the risk free rate and should be equal to the market risk remium hence, H 10 and H 20 were rejected at 5% level of significance. 26

6 TEST FOR NON-LINEARITY Equation 4 was used to test for non-linearity and the results are shown in Table 4. Table 4: Test results for Non-Linearity Parameters Standard error t-value -value γ γ γ The value of the y-intercet,, was not significantly different from zero since the -value, 0.265, was greater than 0.05, therefore, H 10 was rejected. The -value for, 0.274, was greater than 0.05 and hence was not significantly different from zero and H 20 was rejected at 5% level of significance. The t-test results for showed that, it was not significantly different from zero since its -value, 0.26 was greater than 0.05, thus showing that the relationshi between ortfolio returns and betas was linear. The results were consistent with the CAPM hyothesis. TEST FOR NON-SYSTEMATIC RISK The test for non-systematic risk was carried out using equation 5. The table below shows the results of the test; The value of Table 5: Test results for Non-Systematic Risk Parameters Standard error t-value -value γ γ γ γ , from the results above was not significantly different from zero which was contradictory to the CAPM hyothesis. The -value for was greater than 0.05 thus was not significantly different from zero, thus rejecting H 20. The value of was not significantly different from zero, thus roviding evidence for CAPM. The -value for, 0.206, was greater than 0.05, hence was not significantly different from zero. H 40 was not rejected at 5% level of significance. Since was not significantly different from zero, non-systematic risk had no effect on ortfolio returns during the first eriod of analysis, roviding evidence for CAPM. Period 1 results revealed that there was a linear relationshi between ortfolio exected returns and that non-systematic risk did not exlain variation between ortfolio returns. However, the high beta-high returns relationshi was rejected and the sloe of the SML was not significantly different from zero, that is, it was not equivalent to the market risk remium. EMPIRICAL ANALYSIS OF PERIOD 2 The same rocedure was used to test the CAPM for eriod 2. Table 6 shows the ortfolio betas and ortfolio returns. The results of the tests for eriod 2 are shown in Table 7. 27

7 Table 6: Portfolio Betas and Average Returns Average returns Beta Standard error Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % Portfolio % Portfolio 3 which had a higher beta of yielded lower returns of % whereas ortfolio 2 with a lower beta of yielded higher returns of %. This did not suort the high beta- high returns relationshi stiulated by CAPM. Table 7: Test results Parameter Standard error t-value -value SML test γ γ Non-linearity test γ γ γ Non-systematic risk test γ SML TEST γ γ γ The results indicated that the value of, was significantly different from zero since the -value, 0.002, was less than 0.05, H 10 was not rejected. The value of was not significantly different from zero since the -value, was greater than 0.05, and H 20 was rejected at 5% level of significance. NON-LINEARITY TEST The -value for, 0.003, was less than 0.05, hence the value of was significantly different from zero. This was consistent with CAPM. The value for was not significantly different from zero since its -value, 0.414, was greater than 0.05, H 20 was rejected. The results also showed that was not significantly different from zero, as its -value, 0.257, was greater than 0.05 and H 30 was not rejected. The results from this test indicated that ortfolio exected returns were linearly related to ortfolio betas, thus suorting the CAPM hyothesis. NON-SYSTEMATIC RISK TEST The results for the non-systematic risk test revealed that was significantly different from zero, roviding evidence for CAPM hyothesis. The -value for, 0.223, was greater than 0.05, hence the value of, was not significantly different from zero, and H 20 was rejected. The value of was not significantly different from zero since its -value was greater than 0.05 thus roviding evidence in suort of CAPM, that is H 30 was not rejected. The value for was also not significantly different from zero, as its -value, 0.1, was greater than 0.05, therefore H 40 was not rejected. The results revealed that non-systematic risk did not affect exected ortfolio returns, thus roviding evidence in suort of the CAPM hyothesis. The results from eriod 2 showed that there was a linear relationshi between exected ortfolio returns and ortfolio betas and non-systematic risk had no effect on exected ortfolio returns. However, the sloe of the SML was not significantly different from zero and the ortfolio returns and the betas did not exhibit the high beta-high returns relationshi. These results contradicted the CAPM hyothesis. 28

8 CONCLUSION The ortfolio returns and ortfolio betas did not exhibit the high beta-high return relationshi; therefore the results rovided evidence against CAPM. The results for eriod 1 revealed that the intercet and the sloe of the SML were not significantly different from zero whereas the results from eriod 2 revealed that the intercet is different from zero but the sloe of the market line is not significantly different from zero. The CAPM hyothesis says that the intercet should be greater than zero, and equal to the risk free rate, and the sloe should be greater than zero. Therefore, eriod 1 results were in contradictory to the hyothesis and eriod 2 results were contradictory to the hyothesis that the sloe of the SML should be equal to the risk free rate. The results were similar to those obtained by (Yang and Donghui, 2006) from their study on the Shanghai Stock Exchange and results obtained by (Michailidis et al, 2006) on the Athens Stock Exchange. The tests refuted the CAPM s rediction that the sloe of the SML should be equal to the market risk remium. The findings from the study revealed that a linear relationshi existed between exected returns and beta coefficients, roviding suort for the CAPM hyothesis. The results were consistent to (Fama and MacBeth, 1973; Yang and Donghui, 2006) and even though their results rovided evidence against CAPM, they acknowledged that the returns and beta coefficients were linearly related. The results from both study eriods showed that nonsystematic risk does not affect exected returns, which was consistent with the CAPM hyothesis. REFERENCES Ansari, V.A., Caital asset ricing model: Should we sto using it? Vikala, vol 25(1), Ansari, J.A., Naeem, M., & Zubairi, H.J., Financial management in Pakistan. Oxford: University Press. Black, F., Jensen, M.C., & Scholes, M., The caital asset ricing model: Some emirical tests. New York: Praeger. Blume, M., Portfolio theory: A ste towards its ractical alication. Journal of Business, vol 43(2), Blume, M., & Friend, I., A new look at the caital asset ricing model. Journal of Finance, vol 28(1), Bodie, Z., Kane, A., & Marcus, A.J., Essentials of investments. New York: McGraw-Hill. Canegrati, E., Testing the CAPM: Evidences from Italian equity markets. Retrieved from htt://mra.ub.unimuenchen.de/10407/1/mpra_aer_10407.df Chen, M H., Risk and return: CAPM and CCAPM. Quarterly Review of Economics and Finance, vol 43, Elton, E.J., & Gruber, M.J., Modern ortfolio theory and investment analysis. New York: Wiley. Fama, E.F., & MacBeth, J.D., Risk, return, and equilibrium: Emirical tests. Journal of Political Economy, vol 81(3), Fama, E.F., & French, K., The cross section of exected stock returns. Journal of Finance, vol 47, Fama, E.F., & French, K.R., The caital asset ricing model: Theory and evidence. Journal of Economic Persectives, vol 18(1), Javid, A.Y., Forecasting erformance of caital asset ricing models in case of Pakistani market. Javid, A.Y., & Ahmad, E., Testing multifactor caital asset ricing model in case of Pakistani market. Retrieved from htt://mra.ub.uni-muenchen.de/37341/1/mpra_aer_37341.df Jecheche, P., An emirical investigation of the caital asset ricing model: Studying stocks on the Zimbabwe Stock Exchange. Retrieved from htt:// Krish, M., Validity of caital asset ricing model & stability of systematic risk (beta): An emirical study on Indian Stock Market. Retrieved from htt://dx.doi.org/ /ssrn Mazviona, B.W., & Nyangara, D.,. A test of the weak form efficiency of the Zimbabwe Stock Exchange after currency reform. International Journal of Business, Economics and Law, vol 2(2), Michailidis, G., Tsooglou, S., Paanastasiou, D., & Mariola, E., Testing the caital asset ricing model (CAPM): The case of the emerging greek securities market. International Research Journal of Finance and Economics, vol 4, Miller, M.H., & Scholes, M., Rates of return in relation to risk: A re-examination of some recent findings. New York: Praegar. Nikolaos, L., An emirical evaluation of CAPM s validity in the British stock exchange. Iinternational Journal of Alied Mathematics and Informatics, vol 3(1), 1-8. Von Neumann, J., & Morgenstern, O., The theory of games and economic behavior. Princeton: University Press. Yang, X., & Donghui, X., Testing the CAPM model: A study of the Chinese stock market. Master Thesis. UMEA Schoo l of Business. 29