A Comparison between the Performance of Standard Capital Asset Pricing Model and Capital Asset Pricing Model Based on Symmetric and Asymmetric Conditional Heteroscedasticity in Tehran Stock Exchange

Document Type : Research Paper

Authors

1 . Prof., Financial Management, Faculty of Management, Tehran University, Tehran, Iran

2 Ph.D. Student, Finance-Banking, Faculty of Management, Tehran University, Tehran, Iran

Abstract

The capital asset pricing model has been one of the most prevalent models in assessing investors’ expected rate of return. Provided that it is likely that the residuals of the estimated regression of this model resemble conditional heteroscedasticity, this paper aims to test the predictive power of standard CAPM and CAPM based on symmetric and asymmetric conditional heteroscedasticity. For this purpose, the expected returns during the time period of the research have been estimated based on three existing models. The findings were compared with obtained returns and mean squared error index was utilized for measurement of the predictive power of those models. The models were compared using Diebold-Mariano test on mean squared error index. The findings indicated that, with respect to the CAPM model, the consideration of the conditional heteroscedasticity (symmetric and asymmetric) can stimulate predictive power of the obtained return.
 
 
 
 

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References

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Financial Research Journal
Volume 19, Issue 4
2017
Pages 505-520

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