Calculation of systematic risk in portfolio management and a case study in İstanbul Stock Exchange

The Capital Asset Pricing Model hypothesis states that the relevant risk measure in holding a given security is the systematic risk or beta, because all other risk measures can be diversified away through portfolio diversification. According to CAPM, stocks with beta lower than 1 are considered defensive stocks and stocks with beta higher than 1 are considered aggressive and risky. In this thesis, we aimed to explain the computation method of beta coefficients according to Capital Asset Pricing Model (CAPM) and analyzed whether beta coefficients are important in determining investment strategies. It is found that variety of beta estimates can result for the same stock depending on various factors such as the calculation of returns, length of the estimation period and the choice of the market index. Therefore, researches and academicians should be careful in determining these factors in order to estimate better beta coefficients. We found that daily return interval produces better betas, use of more comprehensive market index and economically stable time period may result better betas. We also showed that using adjusted beta calculation method results in better beta coefficients. As a result, beta coefficients are important in determining investment strategies. No matter which estimation period, return interval and market index is used; beta coefficients of each stock are not far from each other and all have the same tendency.