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Econometric testing of the CAPM: A granger causality analysis on the Turkish banking industry

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  • Bayraci, Selcuk

Abstract

The CAPM suggests that stock returns are linearly dependent to the market returns. The only risk factor that an asset bears is the market risk which is captured by the asset's beta. But the CAPM equation does not say much about the causal relationship between market and asset returns. In order to test the validity of the CAPM equation, we have applied Granger causality tests. The causal relationship between the Istanbul Stock Exchange 100 index and banking sector stocks are examined through Granger tests. The data between 04.12.2007 and 04.12.2009 are used for the analysis. Overall we have found weak causal relationships between market and asset returns, therefore the CAPM is not an adequate model for the asset returns of Turkish banking stocks.

Suggested Citation

  • Bayraci, Selcuk, 2010. "Econometric testing of the CAPM: A granger causality analysis on the Turkish banking industry," MPRA Paper 30839, University Library of Munich, Germany, revised 10 May 2011.
    • Handle: RePEc:pra:mprapa:30839
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    References listed on IDEAS

    as
    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. Granger, Clive W. J., 1992. "Forecasting stock market prices: Lessons for forecasters," International Journal of Forecasting, Elsevier, vol. 8(1), pages 3-13, June.
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    More about this item

    Keywords

    CAPM; Granger causality; unit-root tests;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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