Empirical Findings on the Tax CAPM for the German Capital Market

Abstract

The study deals with theoretical and empirical aspects of the Tax CAPM. Following the theoretical derivation of the Tax CAPM with respect to the German tax system, an empirical investigation was conducted to test the explanatory power of this new capital market model. Using a sample of 29 DAX companies, an average absolute difference of 8.01 percentage points between the estimated Tax CAPM yields and the actual (net) yields could be determined. Additionally, a regression analysis with the Tax CAPM yield as the independent variable was established on the basis of 116 yield observations. This ex post-evaluation shows that the Tax CAPM yields explain the yields actually realised with a highly significant correlation. The null hypothesis that the slope of the regression line equals one as well as the null hypothesis that the intercept adopts the value of zero could not be rejected. On the basis of our results it can be certified that the Tax CAPM describes the process of yield generation of the German blue chips between 2001 and 2004 sufficiently well if it is equipped with the appropriate values for the required model parameters.