The Influence of Negative Beta Assets on the Empirical SML in the Polish Capital Market

• Authors: Rafał Wolski
• Languages of publication: EN

Abstracts

EN

The classical approach to the SML assumes that it is a straight line, which means that an investor is willing to accept lower return on the negative beta assets than on the risk-free assets. However, Cloninger, Waller, Bendeck and Revere (2004) challenged this commonly accepted approach. The author of the paper decided to verify the approach using empirical data for years 1999-2006 obtained from the Warsaw Stock Exchange. Finance theoreticians believe that the SML is linear, which means that an investor buying negative beta assets is willing to accept lower return than in the case of a risk-free asset. Cloninger et al. (2004) formulated a hypothesis stating that the SML is V-shaped and that it is not a straight line. It was concluded that an investor had no reason to accept lower return of the negative beta assets; quite the contrary, the investor would expect the same return as on the positive beta ones. The author of this article performed an investigation for the Polish market, taking advantage of companies quoted at the Warsaw Stock Exchange. The investigation demonstrated that between 1999 and 2006, the SML had a V-like shape and thus the research hypothesis formulated in the article was positively verified.

Keywords

EN

Security Market Line; negative beta; CAPM; capital market; cost of capital

• Publisher: Sciendo
• Journal: Folia Oeconomica Stetinensia
• Year: 2009
• Volume: 8
• Issue: 1
• Pages: 140-153

Dates

published

2009-01-01

online

2009-11-20

Contributors

author

Rafał Wolski

• Faculty of Economics and Sociology, University of Lodz, Rewolucji 1905 r. No. 41, 90-214 Lodz

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Identifiers

DOI

10.2478/v10031-009-0028-0