Capital asset pricing model in portfolio management: An application on Istanbul Exchange

The main purpose of investing is to increase the value of the asset. However, when an investment is made, a return can be obtained, as well as a loss. Therefore, various models have emerged for portfolio management today. One of them is the Single factor Capital Asset Pricing model developed by Sharpe (1964), Lintner (1965) and Mossin (1966). CAPM is a model that explains relationship between systematic risk and expected return for assets. Based on the return, risk and covariance data of the assets, the Mean-Variance Model, which Markowitz (1952) put forth in his article named Portfolio Selection, gives the opportunity to reach the highest return that can be obtained at any risk level or to reach the desired return level with the lowest risk. In this study, it is aimed to calculate the beta coefficient by applying Single Factor CAPM on 18 companies traded in BIST and 18 sector indices of BIST and analyze its validity with T-test and to determine heteroscedasticity and serial correlation, which are the basic assumptions of linear regression, with Breusch-Pagan and Durwin-Watson tests and to create an effective frontier and optimal portfolio, separately by using companies and sectors data.