Risk and return: CAPM and CCAPM |
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| Institution: | 1. University of Bradford School of Management, Emm Lane, Bradford, BD9 4JL, UK;2. University of Huddersfield Business School, UK;3. EGADE Business School, Tecnologico de Monterrey, Mexico;1. School of Business, University of Connecticut, 2100 Hillside Road, Storrs, CT 06269, USA;2. Fisher College of Business, Ohio State University, 2100 Neil Avenue, Columbus OH 43210, USA;3. China Academy of Financial Research (CAFR), China;4. London Business School, Regent’s Park, Sussex Place, London NW1 4SA, UK;5. The Center for Economic and Policy Research (CEPR), USA;6. Cheung Kong Graduate School of Business, 1 East Chang An Avenue, Oriental Plaza, Beijing 100738, China;7. National Bureau of Economic Research (NBER), USA |
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| Abstract: | Can consumption growth risk (or consumption beta) serve a better measure of risk than market beta? This paper answers this question by testing and comparing the performance of the traditional Capital Asset Pricing Model (CAPM) and consumption-based CAPM (CCAPM) across seven financial market sub-sectors in the emerging Taiwan stock market. The empirical performance of the CAPM is encouraging. The relationship between stock returns and beta is statistically significant and the coefficient of determination of the regression is high across all of seven industry sub-sectors. In comparison, the CCAPM fails to explain the Taiwan stock market although the consumption beta should offer a better measure of systematic risk theoretically. |
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