An Investigation of the Relationship between Profitability Indices and Systematic Risk Based on the Capital Asset Pricing Model among Accepted Companies in Tehran Stock Market

Systematic risk (beta) is one of the most effective factors in predicting the appropriate required rate of return of portfolios. Understanding systematic risk of usual portfolio of various companies, investors consider financial investment more confidentially. The aim of this study is to determine if there is any significant relationship between profitability indices (earnings per share ratio, rate of return on investment, return on equity) as independent variables and systematic risk (beta) as dependent variables. To do so 102 companies accepted in Tehran Stock Market were selected based on screening (systematic deletion) in a seven-year period between "2004-2010". The required data were gathered from basic financial statement, committee reports, and other available documents in Tehran Stock Market. Regression and Pearson correlation were used to analyze the data. The results of the study revealed that there is significant relationship between profitability indices and systematic risk based on the capital asset pricing model among accepted companies in Tehran stock market. Some suggestions regarding the topic of the research are given too