Multi-Beta Capital Asset Pricing Model and an Application in Turkey

Capital asset pricing model (CAPM) has been making a significant contribution in solving the decision-making problems of portfolios. Yet, the model has its restrictive assumptions. Multi-beta CAPM was developed in order to solve the problem stemming from the assumption that the market is the sole source of risk and considers more risk sources. In this study, multi-beta CAPM has been developed by using the ISE National-100 Index and the ISE-DIBS (Index of T. Bills and T. Bonds) indices as risk factors. This study examines whether 32 stocks of the financial sector are priced appropriately and which risk factor is more effective in stock pricing. According to the results of the regression analysis estimated among stock returns and the ISE National-100 Index and the ISE-DIBS indices, 8 stocks provide statistically meaningful returns. In other words, 8 stocks obtained returns more than the model forecasts. When the importance of risk sources is examined, it is concluded that, the ISE National-100 Index is an important factor in determining stock prices for all stocks, whereas the ISE-DIBS index is an important factor for 12 stocks in the 95% confidence level.