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Revisiting CAPM betas in an incomplete market: Evidence from the Korean stock market

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  • Hur, Seok-Kyun
  • Chung, Chune Young

Abstract

This study develops a model of CAPM betas (true betas) in an incomplete market version of a security market line (SML), and these are compared to the CAPM betas (perceived betas) in a traditional SML. In addition, based particularly on the Korean stock market, we empirically discover that true betas tend to diverge from the perceived betas, especially when the perceived betas are greater than one. Moreover, the distribution of perceived rather than true betas tends to be more centered around one. Overall, this study provides new insight into the CAPM in an incomplete market.

Suggested Citation

  • Hur, Seok-Kyun & Chung, Chune Young, 2017. "Revisiting CAPM betas in an incomplete market: Evidence from the Korean stock market," Finance Research Letters, Elsevier, vol. 21(C), pages 241-248.
    • Handle: RePEc:eee:finlet:v:21:y:2017:i:c:p:241-248
    DOI: 10.1016/j.frl.2016.12.018
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    Cited by:

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    2. Chung, Chune Young & Hur, Seok-Kyun & Wang, Kainan, 2022. "A perfect storm in the financial market," Journal of Financial Stability, Elsevier, vol. 61(C).

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    More about this item

    Keywords

    CAPM; Beta; Incomplete market; SML; Portfolio choice; Korean stock market;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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