An Empirical Study Of The CAPM In Taiwan Stock Market

The Capital Assets Pricing Model (CAPM) is widely used in financial fields, but it's still inconsistent with a considerable body of empirical evidence. Some reasons have been proposed to explain the inconsistency between the empiricalresults and the predicted results of the CAPM. However, so far it's still unsatisfied.This study will focus on the number and period of sample each portfolio. The purpose of theis study is to re-evaluate the suitability of the CAPM in Taiwan stock market when the number and period of sample each portfolio increases. The sample period selected by this study includes monthly and weekly data, from 1991 to 2004.The conclusions are the following:1. The CAPM indicates that the higher risk is, the higher return is. Although the test period runs up to 14 years, the relation between risk and return in Taiwan stock market is still not clear.2. The systematic risk (beta) is unable to explain the return of stocks completely in Taiwan stock market. If the borrowing-cost factor is considered into the modle, the explanation ability maybe higher.