Investigating the volatility, upside risk, downside risk and Capital Asset Pricing Model: Evidences from Tehran Stock Exchange



Modern Portfolio Theories are based on Markowitz’s portfolio optimization model that involves the assumption of Mean Variance Behavior and therefore require the asymmetry and normality of returns. This issue also affects the Capital Asset Pricing Model that estimates systematic risk and uses it in pricing securities.
This article analyzes the various measures of risk. The main purpose of this research is to investigate the relationship between various risk measures and return in Tehran Stock Exchange to clarify that how investors consider risk in their investment decisions. Therefore, this paper investigates the behavior of stock market toward risk. Furthermore, in order to describe the relationship between risk and return, presents alternative models for conventional CAPM that better explain the return.
The results show that monthly returns are not normally distributed. Upside risk criteria strongly explain the monthly returns. Also explanation power of conditional CAPM is low and the difference between the realized returns and the returns that are calculated with three types of CAPM is statistically significant.