The Conditional Relationship Between Beta and Returns: A Reassessment |
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| Authors: | Mark C Freeman Cherif Guermat |
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| Institution: | The authors are respectively from the Bradford University School of Management and Xfi, The Exeter Centre for Finance and Investment and the Department of Economics, University of Exeter. |
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| Abstract: | Abstract: Several recent empirical tests of the Capital Asset Pricing Model have been based on the conditional relationship between betas and market returns. This paper shows that this method needs reconsideration. An adjusted version of this test is presented. It is then demonstrated that the adjusted technique has similar, or lower, power to the more easily implemented CAPM test of Fama and MacBeth (1973) if returns are normally distributed. |
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| Keywords: | Capital Asset Pricing Model empirical asset pricing down-side risk |
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