Investigating the Relationship between Systematic Risk and Stock Returns in Tehran Stock Exchange (From 1387 to 1392) Using the Capital Asset Pricing Model (CAPM)

Abstract

One of the most important issues in the capital market is assessing the risk level of companies, especially “systemic risk” that can affect stock returns, and therefore plays a significant role in decision-making. The present study examined the relationship between stock returns and systematic risk based on the Capital Asset Pricing Model (CAPM) in the Tehran Stock Exchange. The data set contains 5 data points per year for the top 50 companies in Tehran Stock Exchange for the five year period of 1387 to 1392 adding up to a total of 1250 data points. Model parameter estimation is done using Panel data techniques and the results of the hypothesis tests show that the statistically significant correlation between systematic risk and stock returns. The results indicate that the a quadratic relationship explains this correlation better than linear relationship is able to, thus rejecting the assumption of linearity on the correlation between systematic risk and stock returns in the Tehran Stock Exchange

Keywords

• Systematic Risk
• Capital Asset Pricing Model
• Panel Data