Verification of the Conditional CAPM: The Example of the Polish Capital Market

Abstract

In contrast to the classical approach, this work proposed the separate treatment of results received in periods of positive and negative market excess return. Moreover, this study used rather realised than average returns in cross-sectional regressions. The results indicate that relations between returns and beta coefficients are conditioned the sign of market excess return. The average value of premium for systematic risk is significantly greater than zero in periods of positive market excess return and significantly smaller from zero in periods of negative market excess return. Moreover, conditional relations between average returns and beta are significant in contrast with unconditional relations. The received results underline the meaning of analysis of realised return towards the factor risk (in the case of market risk) and confirm usefulness of beta coefficient as proper measures of risk, that is valid in portfolio management.