Empirical study of CAPM and D-CAPM in Russia and in the USA

Abstract

The goal of the following thesis was to compare the applicability of the CAPM and the D-CAPM in the US and Russia. In order to achieve this goal the following objectives were achieved: construction of total return index for MICEX Index; comparison of traditional and downside betas for the sample of companies from the U.S. and Russia; testing of the hypothesis concerning the symmetry of stock return betas to upward and downward movements of the market; testing of the hypothesis concerning the predictive power of the downside beta coefficient. According to the research the D-CAPM can be recommended for two Russian companies – Mosenergo and LUKOIL – and for 36 American corporations, among them such firms as Adobe Systems, Ford Motor, International Paper, and Oracle. Required return, calculated by the CAPM can be relatively low for some investments and the companies should use the CAPM-based cost of equity with caution – especially when there is high asymmetry in stock returns – then the usage of the downside capital asset pricing model is recommended.