Verification of a linear dependence between the risk premium and the systematic risk: Empirical testing based on data from PSE Cover Image

Verification of a linear dependence between the risk premium and the systematic risk: Empirical testing based on data from PSE
Verification of a linear dependence between the risk premium and the systematic risk: Empirical testing based on data from PSE

Author(s): Juraj Hruška, Luděk Benada
Subject(s): Business Economy / Management, Methodology and research technology, Financial Markets
Published by: Masarykova univerzita
Keywords: Risk premium; systematic risk; linearity; CAPM;
Summary/Abstract: In our article we focus on an empirical research of the Capital Asset Pricing Model. The equilibrium model is tested on the data from the Prague Stock Exchange. Our research is focused on the relationship of a systematic risk with an individual market premium. We verify, whether it is possible to identify an explanatory power of the market beta on an excessive return. We are dealing with the hypothesis whether it is possible to use a non-diversifiable risk as a crucial part of the explanatory factor for investment decisions. For the study the Black-Jensen-Scholes methodology will be used. We apply only the one factor model and its modified version.