Analysis of the relationship between risk and expected return: capital asset pricing model test- Bist banking sector application

Risk is the possibility of losing investment. Low risks are associated with low potential returns while high risks are associated with high potential returnsalthough this relationship has been empirically contested with few studies being carried out in İstanbul on the same. This study is to examine the relationship between the risk and expected returns of banks traded on Borsa Istanbul Stock Exchange (BIST). Monthly banking sector data were used from January 2010 to December 2019 and data were collected from www.investing.comand from the website of the Central Bank of the Republic of Turkey (CBRT). Before regression models, ADF unit root tests were applied to the series in order to prevent possible spurious regression problems. As a finding, it showed that there was no relationship between BIST banking sector returns and sector risk, inflation, interest rate and beta values in the stock in the selected timeframe from 2010 to 2019, and none of the tested hypotheses were rejected. Key Words: risk, expected return, inflation, interest rate, beta