Does the conditional CAPM work? Evidence from the Istanbul Stock Exchange

This paper tests whether the conditional CAPM accurately prices assets utilizing data from the Istanbul Stock Exchange (ISE) over the time period from February 1997 to April 2008. In our empirical analysis, we closely follow the methodology introduced in Lewellen and Nagel (2006). Our results show that the conditional CAPM fairs no better than the static counterpart in pricing assets. Although market betas do vary significantly over time, the intertemporal variation is not nearly large enough to drive average conditional alphas to zero.