TESTING CAPITAL ASSET PRICING MODEL FOR ROMANIAN CAPITAL MARKET

Abstract

The purpose of this article is the empirical testing of Capital Asset Pricing Model(CAPM) for the Romanian capital market, both for individual assets and for portfolios, using asample of daily data for 24 companies listed on Bucharest Stock Exchange, during the period06.01.2003 - 31.07.2009, following the interpretation of results and usefulness of the modelestimates. My intention is to find if the relationship between expected return and risk is linear, ifbeta is a complete measure of the risk and if a higher risk is compensated by a higher expectedreturn. The results confirm that the intercept is statistically insignificant, upholding theory, for bothindividual assets and portfolios. The tests do not necessarily provide evidence against CAPM,however other simulations can be built, more close to reality, improving the model and offering analternative which also takes into account the specific conditions of local capital market and theglobal financial crisis consequences.Capital Asset Pricing Model (CAPM), beta, risk free rate, risk premium, expected return