Explanation of Returns Changes in CAPM, TFPM, FFPM in Tehran Stock Exchange

Abstract

The Capital Asset Pricing Model (CAPM) has dominated finance theory for over thirty years. Capital Asset Pricing Model is an equilibrium model that explains why rates of return expected on stock is different; it suggests that the market beta alone is sufficient to explain stock returns. However evidence shows that the cross-section of stock returns cannot be described solely by the one-factor CAPM. Therefore, the idea is to add other factors in order to complete the beta in explaining the price movements in the stock exchange. The main contribution of this research is comparison between the CAPM, the Fama and French asset pricing model (TPFM) and the Four Factor Pricing Model (FFPM) adding the third and fourth moments to explain stock returns changes Tehran Stock Exchange listed firms. Research statistical Society is Companies listed on the Tehran Stock Exchange from 1386 until 1389, a period of 4 years. The sample consisted of 33 companies among the top 100 companies in Tehran Securities and Exchange member firms. In present research survey Addition of skewness and kurtosis on the proxy asset pricing model four factors have a greater ability than other asset pricing models in explaining variations in stock returns are expected on top 100 companies in Tehran Stock Exchange member firms period 2007-2011. The selection of the best model is based on the highest coefficient of determination. The kurtosis-FFPM turned out to be the best model.