The Capital Asset Pricing Model ( is a multidimensional model which can be used in the pricing procedure of many risky assets. One of these dimensions where we try to approach is the share valuation... More > process. Our starting point is the risk-adjusted rate of return valuation formula where after careful transformations we obtain three testable regression equations. The first one is a regression equation of the form "P actual on P predicted". The evidence do not support the CAPM in most cases. The second one is a regression equation of the form "next period's cash payoff on today's price and on today's price adjusted for a risk factor, that is, beta". This specification suffers by multicollinearity and the log-transformation is necessary. The newly specified model do not suffer by multicollinearity and gives results half in favour of the CAPM and half against it.< Less
The Capital Asset Pricing Model ( is a multidimensional model which can be used in the pricing procedure of many risky assets. One of these dimensions where we try to approach is the share valuation... More > process. Our starting point is the risk-adjusted rate of return valuation formula where after careful transformations we obtain three testable regression equations. The first one is a regression equation of the form "P actual on P predicted". The evidence do not support the CAPM in most cases. The second one is a regression equation of the form "next period's cash payoff on today's price and on today's price adjusted for a risk factor, that is, beta". This specification suffers by multicollinearity and the log-transformation is necessary. The newly specified model do not suffer by multicollinearity and gives results half in favour of the CAPM and half against it.< Less
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