Testing the relation between beta and returns in the Athens stock exchange

Testing the relation between beta and returns in the Athens stock exchange Purpose – The purpose of this paper is to examine the relationship between beta and returns in the Athens stock exchange (ASE), taking into account the difference between positive and negative market excess returns' yields. Design/methodology/approach – The data were taken from DataStream database and the sample period consists of 12 years divided into four six‐year periods such that the test periods do not overlap. Regression analysis is applied, using both the traditional (unconditional) test procedure and the conditional approach. Findings – The estimation of return and beta without differentiating positive and negative market excess returns produces a flat unconditional relationship between return and beta. However, when using the conditional capital asset pricing model (CAPM) and cross‐sectional regression analysis, the evidence tends to support the significant positive relationship in up market and a significant negative relationship in down market. Research limitations/implications – The small number of listed companies in the ASE led to the inclusion of the financial and insurance companies in the sample, and to the formation of a small number of portfolios. The same research methodology could be applied to individual stocks of the ASE and with the exclusion of all financial companies. Originality/value – The results tend to support the existence of a conditional CAPM relation between risk and realized return trade‐off. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Testing the relation between beta and returns in the Athens stock exchange

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Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
0307-4358
DOI
10.1108/03074351011088441
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the relationship between beta and returns in the Athens stock exchange (ASE), taking into account the difference between positive and negative market excess returns' yields. Design/methodology/approach – The data were taken from DataStream database and the sample period consists of 12 years divided into four six‐year periods such that the test periods do not overlap. Regression analysis is applied, using both the traditional (unconditional) test procedure and the conditional approach. Findings – The estimation of return and beta without differentiating positive and negative market excess returns produces a flat unconditional relationship between return and beta. However, when using the conditional capital asset pricing model (CAPM) and cross‐sectional regression analysis, the evidence tends to support the significant positive relationship in up market and a significant negative relationship in down market. Research limitations/implications – The small number of listed companies in the ASE led to the inclusion of the financial and insurance companies in the sample, and to the formation of a small number of portfolios. The same research methodology could be applied to individual stocks of the ASE and with the exclusion of all financial companies. Originality/value – The results tend to support the existence of a conditional CAPM relation between risk and realized return trade‐off.

Journal

Managerial FinanceEmerald Publishing

Published: Oct 19, 2010

Keywords: Greece; Stock exchanges; Capital asset pricing model; Portfolio investment; Rate of return

References

  • An empirical re‐examination of the cross‐section of expected returns: UK evidence
    Chan, A.; Chui, A.P.L.
  • Fundamentals and stock returns in Japan
    Chan, L.K.C.; Hamao, Y.; Lakonishok, J.
  • Multi‐factor risk‐return relationships
    Diacogiannis, G.P.; Diamandis, F.P.
  • Stability tests for alphas and betas over bull and bear market conditions
    Fabozzi, F.J.; Francis, J.C.
  • The cross‐section of expected stock returns
    Fama, E.; French, K.
  • An assessment of the risk and return of French common stocks
    Hawawini, G.; Michel, P.; Viallet, C.
  • Valuation effects of Greek stock dividend distributions
    Papaioannou, G.J.; Travlos, N.G.; Tsangarakis, N.V.
  • Price limits and stock market volatility in the Athens stock exchange
    Phylaktis, K.; Kavussanos, M.; Manalis, G.
  • Capital asset prices: a theory of market equilibrium under conditions of risk
    Sharpe, W.F.
  • The cross‐section of expected stock returns: an empirical study in Athens stock exchange
    Theriou, N.; Maditinos, D.; Chatzoglou, P.; Anggelidis, V.

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