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Multivariate testing of the capital asset pricing model in the Hong Kong stock market

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  • Yue-Cheong Chan

Abstract

The paper provides a multivariate testing of the Sharpe-Lintner and Black Capital Asset Pricing Model (CAPM) for the Hong Kong stock market. Adopting the multivariate approach has many advantages, such as elimination of the error in variables problem encountered in the univariate approach as well as provision of an efficiency gain in the parameter estimates. The estimation results reject both versions of CAPM. The source of rejection seems to come from the firm size effect as it is found that small firms (which also have small betas) have earned returns higher than the CAPM has predicted. Furthermore, the estimated return of the zero beta portfolio in the Black CAPM is found to be statistically insignificant.

Suggested Citation

  • Yue-Cheong Chan, 1997. "Multivariate testing of the capital asset pricing model in the Hong Kong stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 7(3), pages 311-316.
    • Handle: RePEc:taf:apfiec:v:7:y:1997:i:3:p:311-316
    DOI: 10.1080/096031097333673
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    Cited by:

    1. Ho, Ron Yiu-wah & Strange, Roger & Piesse, Jenifer, 2006. "On the conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(3), pages 199-214, July.
    2. Melody Nyangara & Davis Nyangara & Godfrey Ndlovu & Takawira Tyavambiza, 2016. "An Empirical Test of the Validity of the Capital Asset Pricing Model on the Zimbabwe Stock Exchange," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 365-379.
    3. Gordon Tang & Wai Cheong Shum, 2006. "Risk-return relationships in the Hong Kong stock market: revisit," Applied Financial Economics, Taylor & Francis Journals, vol. 16(14), pages 1047-1058.
    4. Keith Lam & Frank Li, 2008. "The risk premiums of the four-factor asset pricing model in the Hong Kong stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 18(20), pages 1667-1680.
    5. Md Isa, Abu Hassan & Puah, Chin-Hong & Yong, Ying-Kiu, 2008. "Risk and return nexus in Malaysian stock market: Empirical evidence from CAPM," MPRA Paper 12355, University Library of Munich, Germany.

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