A TEST OF THE CAPM ON THE ICELANDIC STOCK MARKET
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Authors:
• Stefan Gunlaugsson, email: unknown, Afiliation: University of Akureyri, Iceland -
Keywords: unknown
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Abstract:
In this article, we present the result of a study of the validity of the CAPM on the Icelandic stock market. This study starts in January 1999 and ends in May 2004. The results are surprising. They indicate that the CAPM has worked well in the small Icelandic stock market and that it, or the beta coefficient, does explain returns better than on larger foreign stock markets. There was a strong relationship between the beta coefficient and stock returns in this research. Further, the stock returns with high betas were higher than one would expect according to the CAPM. Therefore, the SML was steeper than one would expect according to the CAPM. Like the CAPM predicted there was no relationship between firm-specific risk and returns.