Analysis of macroeconomic factors that affecting stock returns with arbitrage pricing model: The case of Turkey

In the theory of finance, there are two main asset pricing models aimed to explain capital asset pricing and stock returns. These models are Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Model (AFM). The purpose of this study is to search the suitability and the validity of AFM in our country.The first part of the study gives general information about capital market theory, after mentioning the basic concepts about portfolio management, risk-return change and diversification, the capital asset pricing model and its assumptions discussed.In the second part of the study, the arbitrage pricing model which is analised within practice is discussed in detail. After explaining the assumptions and the factors affecting the asset prices, some information about accomplised studies are stated.In the third part of the study, the correlation between 6 macroeconomic variables and 13 companies whose stocks are traded at IMKB 30 is estimated with APM for the period of January 2000 ? March 2008. After the stability tests for the variables, the regression equation is estimated by using Backward Elemination method for all the companies and the best models that gives the perfect solutions are formed.The analysis results are statisticaly significant and meaningful in economical. Hence, to determine the macroeconomic variables that affecting stock returns in İstanbul Stock Exchange, it is possible to say that the Arbitrage Pricing Model is utilizable.Keywords: Stock Returns, Risk, Capital Asset Pricing Model, Arbitrage Pricing Model.