TESTING THE CAPM (CAPITAL ASSET PRICING MODEL) ON BUCHAREST STOCK EXCHANGE

One of the most important developments in the modern portfolio theory is the CAPM (Capital Asset Pricing Model) model, developed by Sharpe (1964) and Lintner (1965). This model was the first to evaluate the cash flow risk of a potential investment and the first to estimate the rate of earning expected by investors. CAPM was developed, at least partially, to explain the differences of premium risks between assets. According to the CAPM model, these differences are due to the different degrees of risk for the earnings of these assets. The model affirms that a correct measurement of the degree of risk is known as beta, and that the premium risk per unit of the risk degree is the same for all assets. Given the rate of the risk-free asset and the beta quotient for an asset, CAPM forecasts the expected premium risk for an asset.