Empirical evidence on the reliability of CAPM: A case study of BIST 30 index, Turkey

This thesis empirically investigates the relationship between beta and the average returns over the period between 2009 to 2013 for 30 active firms in Borsa Istanbul stock Exchange by using the second pass regression analysis in the light of the CAPM model. The approach conducted in this thesis is to test whether the security Market Line (SML) holds for Borsa Istanbul stock Exchange’s sample data. Based on the empirical results estimated, explanatory power supports the view that the estimated value of coefficient is less than zero. The regression estimates suggest that standard CAPM is not able to provide the results which could validate the accuracy of CAPM for Borsa Istanbul stock Exchange in Turkey. The results of this study suggests that, Turkish stock market could provide new investment opportunities for international investors but since the economy is active in emerging markets the risk could be associated to the returns. Keywords: CAPM, the second pass Analysis, BIST, and Turkish Economy.