Capital plus pricing theoretical account ( CAPM ) is an equilibrium theoretical account which uses to demo the relationship between the hazard and return of an single plus or portfolio of assets. In other words, CAPM indicates how assets are priced sing their hazard. Harmonizing to the portfolio theory, investors use variegation in order to cut down unsystematic hazard. Efficient portfolios will rule other investings and each investor will choose one of the efficient portfolios based on the grade of his risk-aversion.
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Previous surveies done in Iran or other states on CAPM, considered the application of the theoretical account for single stocks, portfolios of stocks, specific assets, or the market indexes. Merely few surveies applied the CAPM theoretical account for major existent assets of the economic system. Sing this spread of research that extended this theoretical account to other markets, this survey applies the CAPM to mensurate systematic hazard and expected return of selected markets in Iran ‘s economic system, the gold market, currency market, stock market and existent estate market, for the period from the first one-fourth of 1995 to the 2nd one-fourth of 2007.
The research consequences showed that negative relationship exist between systematic hazard with realized and expected return of the currency market, a negative relationship between hazard and expected return rate in the stock market, and a positive linkage between these two variables in the existent estate market. On the other manus, there is no important relationship between hazard and realized return in the stock market and the existent estate market. Furthermore, deficiency of important relationship between hazard with realized and expected return is found in Gold market.
Cardinal Wordss: CAPM, Systematic hazard, Financial Assets, Expected Return, Real Return.
CAPM is an equilibrium theoretical account used to demo the relationship between hazard and expected return for single assets and for portfolios. In other words, CAPM shows how assets are priced sing their hazards. CAPM assume that investors use variegation in an effort to cut down unsystematic hazard. Harmonizing to the portfolio theory, efficient portfolios will rule other investings and each investor will choose one of the efficient portfolios based on the grade of his risk-aversion ( Treynor 1961 ; Sharp 1964 ; Lintner 1965 ) .
To day of the month, assorted surveies have been done to depict the relationship between hazard and expected return of stock market in Iran and other states. These surveies largely considered stocks of one company, the stocks combination of some companies, specific assets, or the market indexes. They chiefly attempt to reply two inquiries ( 1 ) how the hazard of assets should be measured, and ( 2 ) what relationship exist between hazard and expected return of investors ( i.e. Basu 1977 ; Rosenberg, Reid, and Lanstein 1985 ; Bakhshande 1990 ; Hamedani and Pirsalehi 1993 ; Shafizadeh 1995 ) . To reply these two inquiries, first it is assumed that investors are able to choose their preferable portfolio among different portfolios based on the expected return and the discrepancy. Second, all investors agree on investing skyline and distribution of expected returns of assets, and besides there are no imperfectnesss in the capital market ( Copeland, Weston and Shastri 2005 ) .
On the other manus, the empirical research largely investigated the plus ‘s return dependance on the market return and besides the additive relationship between hazard and expected return in each selected stock markets ( i.e. Lakonishok and Shapiro 1986 ; Shafizadeh 1995 ; Zarif fard and Ghaemi 2003 ) . In general, surveies on CAPM theoretical account were non limited merely to the stock markets, this theoretical account was besides used in other markets to explicate the relationship between hazard and return ( i.e. Kullmann 2001 ; NG 2003 ; Jafari samimi et al. , 2006 ) .
Many of research about CAPM in the context of stock markets in one manus and the deficiency of research to widen this theoretical account to other markets in the other manus, supply this chance to generalise CAPM to other markets. In other words, this survey will use CAPM to gauge the systematic hazard and expected return in four selected markets in the Persian economic system, viz. , existent estate market, stock market, gold market, and currency market. This survey will cover the period from the first one-fourth of 1995 to the 2nd one-fourth of 2007.
This survey in add-on to gauging the systematic hazard for these four selected markets of Iran ‘s economic system based on CAPM, tried to happen out the followers ( 1 ) Is there a important relationship between the systematic hazard and the corresponding rate of expected return in currency, stock, gold, and existent estate markets, ( 2 ) Is there a important relationship between the systematic hazard and the accomplished return in the selected markets, and eventually If so, what type of relationship exists?
This paper is organized as follows ; Section II discusses the bing empirical literature on the CAPM and its development in other countries. Section III states the theoretical footing refering to CAPM. Its applications in mensurating the systematic hazard and return of four selected markets of Iran are explained in Section IV. The informations used in the survey and the methodological analysis that examines the testing of unit root and additive arrested development is explained in Section V, and eventually the consequences and findings of research are concluded in Section VI.
The CAPM was developed by Sharpe ( 1964 ) and Lintner ( 1965 ) and it relates the expected rate of return of an single security to a individual index. The sensitiveness of the plus return to alterations in that index is a step of the plus systematic hazard. In fact, the index may be any variable idea to be the dominant influence on stock returns and need non be a stock index ( Jones, 1991 ) .
The CAPM predicts that the expected return on an plus above the riskless rate is linearly related to the non-diversifiable hazard, which is measured by the plus ‘s beta. The CAPM is a single-period ex ante theoretical account. However, since the ex ante returns are unobservable, research workers normally rely on realized returns in order to prove the cogency of the CAPM.
However, a turning figure of surveies found that the cross-sectional fluctuation in mean security returns can non be explained by the market beta entirely, and showed that cardinal variables such as size ( Banz, 1981 ) , ratio of book-to-market value ( Rosenberg et al. , 1985 ; Chan et al. , 1991 ) , macroeconomic variables and the monetary value to net incomes ratio ( Basu, 1983 ) history for a ample part of the cross-sectional fluctuation in expected returns.
Jagannathan and Wang ( 1996 ) show that the deficiency of empirical support for the CAPM may be due to the wrongness of basic premises made to ease the empirical analysis. For illustration, most empirical trials of the CAPM assume that the return on wide stock market indices is a good placeholder for the return on the market portfolio of all assets in the economic system. However, these types of market indexes do non capture all assets in the economic system such as human capital.
Basu ( 1975 ) investigated the relationship between hazard and ( E/P ) ratio with plus ‘s return in stock market. The research grounds showed that companies with higher ( E/P ) ratio have high returns. Reinganum and Banz ( 1981 ) mentioned that Companies ‘ size has a important consequence on stock return and the 1s with a smaller size have a higher return. Benz ( 1982 ) found that adding the market value of the houses to the arrested development between return and stock beta helps to hold a better elucidation for the mean return of company ‘s stock differences. The grounds of Rosenberg, et Al. ( 1985 ) showed that there is a positive relation between the mean stock return of American companies and the book value of common stocks. Lakonishok and Shapiro ( 1986 ) investigated on the relationship between the systematic hazard and the house size with stock return ; they found that there is a weak relationship between beta with stock return, and a important relation between market ‘s monetary values of stock return with stock return.
To reason, the testing of the CAPM is susceptible to many troubles. Among those, the job of happening a suited market placeholder. To get the better of this job, Hou ( 2003 ) used a conjectural market portfolio to proxy the true market portfolio in the CAPM testing. This aggregative market portfolio has GDP as its dividends. As a consequence, it is supposed to include every factor that contributes to the accretion of wealth. This attack is peculiarly relevant to this survey since we will prove four different markets and no other placeholder can function as a market portfolio for the selected markets.
In Iran, surveies done on CAPM, such as Bakhshande ( 1990 ) , Hamedani et al. , ( 1993 ) and Shafizadeh ( 1995 ) on hazard and return in Tehran Stock Market found that there is a additive relationship between systematic hazard and return of common stock. The research grounds of Hesami ( 1998 ) showed that a correlativity between ( P/E ) ratio and exist, with stock return. Mosavi Kashi ( 1988 ) found that there is no additive relation between size and stock return. He besides found that ( P/E ) ratio and rate of return have a weak relationship. The research consequences of Mirzai ( 1999 ) showed that, ( B/M ) ratio, ( E/P ) ratio and ( C/P ) ratio were related to each other during the past old ages and value scheme can be an appropriate method for investing. ( E/P ) ratio and ( C/P ) ratio are extremely correlated with the future return of stocks, and through puting in stocks with higher ratios, higher return is expected excessively. The research grounds of Pourreza ( 2000 ) detected that there is a important relation between stock return, portfolio, macro and pecuniary factors of the economic system. Shafiezadeh ( 1995 ) showed that systematic hazard and return have important relation in footings of statistics. He besides found that non additive relationship helps to hold a better elucidation for the relation of systematic hazard and stock return in comparing with additive theoretical accounts. Jenani ( 2003 ) investigated on the relationship between two indexs, ( P/E ) and the existent stock returns of the industrial nonmetal minerals groups companies. In continue Zarif fard and Ghaemi ( 2003 ) mentioned that mensurating systematic hazard entirely ca n’t fulfill the stock return alterations. Nosratollahi ( 2003 ) used the CAPM theoretical account to measure the efficiency of Tehran Stock market and pricing mechanism. Although the market efficiency hypothesis of Tehran Stock Exchange was non supported, yet the possibility of over pricing or under pricing securities is non rejected.
In all surveies mentioned above, CAPM were used to analyse the hazard and return in stock markets ( mainly companies stocks ) . Studies which studied the applications of CAPM in other economic activities other than the stock market have besides been done. The intent was to turn out that CAPM has capablenesss to be used for analysing other assets, particularly for assets in the macro economic system.
Using an intertemporal multifactor plus pricing theoretical account, Doukas, Hall and Lang ( 1999 ) tested whether foreign currency exposure is priced in the capital market of Japan. This survey relies on the premise that the currency-risk premium alterations through the clip in response to alterations in concern conditions and investors ‘ perceptual experience of hazard. Their plus pricing theoretical account trials showed that the foreign exchange-rate hazard premium is a important constituent of Nipponese stock returns. Specifically, the consequences suggested that currency-risk exposure controls a important hazard premium for transnational and high-exporting Nipponese houses. The currency hazard factor is found to be less influential in explicating the behaviour of mean returns for low-exporting and domestic houses. However, it is shown to exhibit big return volatility that is likely to be perceived by investors, who wish to command portfolio hazard, as an of import implicit in beginning of hazard.
Kullmann ( 2001 ) used CAPM to analyze whether residential and commercial existent estate hazards carry positive hazard premiums. By utilizing both Fama Macbeth cross-sectional arrested development techniques and a stochastic price reduction factor, GMM model is tested to happen whether the cross-sectional explanatory power of well-known plus pricing theoretical accounts can be improved by adding a existent estate factor. He found strong grounds for the hypothesis that both residential and commercial existent estate hazards are priced by the market and hence have a definite function in empirical plus pricing specifications. The research grounds showed that returns of existent estate market are non sensitive to the pricing of the assets.
Ng ( 2003 ) investigated the relationship between mean return of currency market and the stock market of U.S. , Japan, Germany and England. He mentioned that international CAPM has a great potency to be used to analyse hazard and return for the two chief economic assets in those states, i.e. the Stock market and foreign exchange market. Jafari samimi et al. , ( 2006 ) applied the combined method of Markowitz efficient portfolio and capital plus pricing theoretical account on petro-chemistry, gas injection, and gas export in Iran. They found optimum portfolios, which derived from assorted allotments to different gas ingestion picks and besides make the best value in different hazard degrees, through the Markowitz efficient portfolio theory. The writers reached to an efficient frontier by uniting all of these efficient portfolios. Then through implementing CAPM they found the efficient portfolio. With definite pricing of all possible assets, an efficient market line was achieved. The writers reached to an efficient combination at the tangent point of efficient market line with efficient frontier. Based on this theoretical account Jafari samimi et al. , ( 2006 ) computed the efficient portfolio for alternate combinations of petro-chemistry, gas and gas injection undertakings in five different scenarios of 100, 200, 300, 400, 500 million three-dimensional metres.
This survey will add to the literature in a sense that CAPM will be utilized in new markets for the first clip in finding the systematic hazard of the four selected markets in Iran.
The CAPM is an equilibrium theoretical account that shows the relationship between hazard and return for single assets. It was developed by Sharpe ( 1964 ) , Lintner ( 1965 ) , and subsequently generalized by Black ( 1972 ) . This theoretical account states that expected returns of single assets should be a additive maps of their systematic hazard. The theoretical account has been built on five cardinal premises. These premises include that the investors have homogenous outlook about plus returns, they are risk- antipathetic persons who maximize the expected public-service corporation of their wealth, they may borrow or impart limitless sum at hazard free rate, all assets are marketable divisible, and there are n’t market revenue enhancements, ordinances, or limitations on short merchandising.
The equation of CAPM is as follows ;
( 1 ) )
Where E ( rj ) , Rf, E ( Rm ) , and are expected return for plus J, hazard free return, market portfolio return, and systematic hazard severally.
The systematic hazard of an plus is calculated by its beta, which is defined as the covariance of the plus ‘s return with the return of market portfolio, it is normalized by the discrepancy of the market portfolio returns. Coefficient for an plus is calculated as follow ( Copeland, Weston and Shastri 2005 ) :
( ( 2 (
The easier equations can be used to cipher systematic hazard is as follows ;
( ( 3 (
( ( 4 (
( ( 5 (
( ( 6 (
The beta coefficient is a really of import index for CAPM, it defines the sensitivity of plus ‘s return rate to market return rate. If it becomes equal to ( 1 ) , the expected return rate will be equal to the market rate of return. If beta coefficient considers as ( 2 ) , the expected return rate will be higher than the market return rate. Besides, if beta coefficient supposed to be 0.5, the expected return rate will be lower than the market return rate.
Figure 1. The Relation between Risk and Return for Individual Return
Figure ( 1 ) explains the relationship between hazard and expected return for single plus and sum of assets ( the portfolio ) . It shows that when the hazard addition on the capital market line ( CML ) and the stock market line ( SML ) , the return will lift at the same time.
Figure 2. CML in Different Status
As shown in Figure ( 2 ) , with increasing the correlativity coefficient between hazard and return, the relationship becomes direct, and with increasing the hazard the return besides increases. In contrast, when the correlativity coefficient decreases, it leads to altering the relationship and even makes it rearward and negative.
In this status, the relationship between hazard and return will be rearward and return rate in negative correlativity coefficient declines to be lower than hazard free rate of return. When the correlativity coefficient between two variables is equal to 1, ( , the CML, , will be equal to the stock market line, , due to being equal of and in this state of affairs.
CAPM applications in the systematic hazard of four selected markets in Iran
A. Extending of the CAPM theoretical account to the full economic system
To mensurate the systematic hazard of the four major economic markets ( gold, currency, existent estate and stock market ) , foremost the needed variables for the CAPM should be calculated for each of them. Required variables are return for each plus, hazard free return, portfolio return ( or return of entire market ) .
The computation of each plus ‘s return and hazard free return is no major job ; nevertheless the chief job is choosing an appropriate alternate standard. In the computation of company ‘s stocks systematic hazard, entire return of the stock market or entire return of the specific industry is considered as an index. But when we look at the choice of appropriate assets from macro attack, the chosen index should bespeak the mean return of the investings in the full economic system. If an investor is traveling to put in one of these four major selected markets, the chief premises of CAPM should be considered, foremost: the ability of taking among the different portfolios based on the investors ‘ desired expected return and the discrepancy. Second, the information about investing skyline and the distribution of plus ‘s return are clearly exist.
Therefore for each of the markets the same return will be expected. On the other manus an investor can put in every other markets of the economic system and obtain the same return. The mean return of entire economic system can be a suited standard for portfolio return, because the economic growing achieved from mean return of all markets ‘ returns in an economic system, and one expects that with puting in each of the economic system markets obtain an mean return equal to the economic growing, and if the obtained return was less than the sum, he gain less than the portfolio return and frailty versa. What Hou ( 2003 ) says about taking GDP? ? .Following Hou ( 2003 ) , we choose GDP to proxy the market portfolio.
So the mean return of entire economic system can be a good standard that a individual can see if he wants to put in any of these four selected markets. Economic growing so can be defined as a return of physical and human capitals exists in an economic system in a specific period. In other words, a individual with using his homo and physical capitals- regard to the production map in the economy- can add to the production flow of the economic system.
If K considers as the sum of physical capital of a individual, and L considers as the human capital, an investor who utilizes his capital in the economic system can obtain certain sum of return. The mean expected return depends on the production map of the full economic system. Therefore one can anticipate Q sum of production in T periods of clip through mean production map of economic system F, with using his capitals:
( 7 (
A alteration in production in each periods of clip is due to the alterations of homo and physical capitals:
( 8 (
( 9 (
( 10 (
( 11 (
These equations indicate that economic growing in specific period of clip is due to the growing of the 1 ‘s human and physical capitals. If obtained return was less than this sum it means that he gain less than portfolio return and frailty versa.
B. Describe the Method Used to Calculate the Return in the Four Selected Markets
To mensurate systematic hazard for the four selected markets of the economic system, gold, currency, existent Estate and stock market, first returns for all of these markets were calculated.
In order to happen the gold market return, the per centum of alterations in gold coin monetary value was used, with the justification that, the proprietors of the gold coins benefit or lose based on the addition or lessening of its monetary value. For Currency, the per centum of dollar exchange rate in non-official foreign exchange market of Tehran was considered. For Currency, the proprietor of one dollar note will derive return with the addition in the dollar exchange rate. For Stock market, the per centum alteration in entire index of Tehran Stock Exchange was considered, because it is assumed that one ‘s stock monetary value will be increased in norm the same sum as the entire stock market addition. Finally, for the existent market, entire per centum alterations of house rental index in big metropoliss and belongings index, rental fees and concern activities as an result of lodging and existent estate is considered.
As for the hazard free rate of return, short-run involvement rates for sedimentations has been used. Meanwhile, for the growing rate of GDP, the changeless 1996 monetary values compared with the same one-fourth at the old twelvemonth, as the return standard was considered.
All informations used are quarterly and include the old ages from 1995 to 2007. All informations were gathered from clip series informations bank of Central Bank of Islamic Republic of Iran[ 1 ].
The expected rate of return is the rate of return when one invest in an plus and expect to derive benefit with the relative sum of imposed hazard in the hereafter.
Data and Methodology
Systematic hazard of four selected markets in Iran
To mensurate the systematic hazard of each market, foremost the mean rate of return for the market and the portfolio return were calculated. Then discrepancy of the market monetary values during the selected period was determined utilizing equation ( 3 ) . Equations ( 5 ) and ( 6 ) were used to demo the market correlativity and systematic hazard. To cipher expected rate of return equation ( 1 ) was utilized. All the consequences of these computations and their analyses are as discussed below.
Since the additive arrested development is applied to prove the research hypotheses and the being of clip series for the research variables, each independent and dependent variables should be tested to corroborate their stationary by utilizing proving of unit root. If absolute value of ADF statistic is lower than the absolute value of each critical value 1 % , 5 % and 10 % , so hypothesis will be rejected, means that the considered variable is stationary. Harmonizing to this definitions and consequence of Table 1, all independent and dependent variables of this research are stationary due to being lower than the absolute value of ADF Statistic relation to each the critical values.
Table ( 1 ) . Unit Root Test by Using ADF Test
Systematic Hazard of Currencies
Systematic Hazard of Stock
Systematic Hazard of Housing
Systematic Hazard of Gold
Expected Return of Currency
Real Return of Currency
Expected Return of Stock
Real Return of Stock
Expected Return of Housing
Real Return of Housing
Expected Return of Gold
Real Return of Gold
To go on, each of the selected markets will be analyzed in footings of the CAPM premises.
The currency market is considered as a critical replacement market for formal markets in Iran ‘s economic system. Hazard of this market explains the sensitiveness of the expected return fluctuations of investing in currency with the portfolio return. Changes tendency of systematic exchange rate hazard ( Figure 3 ) indicates it is less than ( 1 ) for most of the selected periods. This means that the expected return of investor when invests in the currency market is lower than portfolio return ( which is economic growing here ) . Furthermore, holding low systematic hazard during research periods explains two points ; foremost, in these periods, risk-averse persons willing to put in currency market, and secondly, because of low hazard of investing, investors ‘ return is besides low, so they are non willing to put in this market. One of the most of import grounds might be because of one-rate policy applied for the currency market by authorities during this period which led to extinguishing the arbitrage chances in the market.
Figure 3. Changes Trend of Systematic Risk in Currency Market
Tendency of expected return rate alterations for the currency market in Figures ( 4 ) and ( 5 ) , indicates that there is an asymmetric alterations between systematic hazard and return, intending that when systematic hazard additions in one period, investors expect that return additions as good, but really such alterations in expected return rate are non observed in the figures. Particularly, this tendency between hazard and return is discernible from the 3rd one-fourth of ( 1998 ) to the terminal of research period. The grounds of these tendencies can be implied in commanding policies for the currency markets by cardinal bank of Iran, other markets were more attractive in comparing with currency market in some research periods and besides using one-rate policy to extinguish the arbitrage opportunities in this market after ( 2001 ) .
Linear arrested development between systematic hazard ( independent variable ) and expected rate of return ( dependent variable ) of currency market were used to prove whether there is a important relationship between hazard and expected return rate in currency market.
There is n’t important relationship between systematic hazard and expected return rate
There is important relationship between systematic hazard and expected return rate
Figure 4. Changes Trend of Expected Return Rate of Currency Market
By and large, when the arrested development coefficient is positive it means that there is a positive relationship between hazard and return. Therefore, the market will be in equilibrium, and hazard and return will alter in the same way, this position is compatible with the constructs of CAPM.
Harmonizing to the above definitions, the arrested development consequences of systematic hazard and expected return rate show that return coefficient is important in the degree of first type mistake ( 5 % ) , so is rejected and is accepted, it means that there is a important relationship between hazard and expected return rate in Iran ‘s Currency market.
Furthermore, coefficient of independent variable is negative, so the relationship between systematic hazard and expected return rate will be negative during research period. This means that investors do n’t acquire the return sum coordinated with the corresponding hazard, and so the market is non in equilibrium. In add-on, important coefficient ( ) is equal to 38.3 % that is acceptable due to existence of merely one descriptive variable in arrested development equation.
Figure 5. Changes Trend of Expected Return and Systematic Risk of Currency Market
Now to depict the relationship between the hazard and return more accurately, another theoretical account based on the systematic hazard and existent return is used. As shown in figure ( 6 ) , the tendency of systematic hazard and existent return alterations are comparatively co-ordinated ( Although, low coordination has experienced in some periods ) . Changes of existent return well have decreased from the 3rd one-fourth of ( 1998 ) to the 2nd one-fourth of ( 1999 ) , and the stable tendencies for the other research periods can be seen.
Figure 6. Tendency of Real Return and Systematic Risk alterations in Currency Market
The existent return fluctuations decreased from 2001 onwards due to using the policy of one-rate for currency rate, besides the ability of the cardinal bank to command the irregular fluctuations of the currency. This policy well led to the lessening of existent and expected return for this market, so the market attraction badly has declined for risk-loving investors.
The consequences of arrested development between systematic hazard and existent return of currency market are similar to the consequences of expected rate of return, so that return coefficient is important for the first type mistake ( 5 % ) , and P-Value is equal to ( 0.001 ) . Therefore, hypothesis rejected and hypothesis is accepted. Furthermore, coefficient of independent variable is negative, means that there is a negative relationship between systematic hazard and existent return of currency market in the research period. The important coefficient of arrested development ( ) besides is equal to ( 18.2 % ) that is comparatively acceptable sing the being of merely one descriptive variable in the arrested development equation.
The tendency of systematic hazard alterations for stock market indicates that the hazard index is higher than ( 1 ) in some periods ( i.e. 3th and 4th one-fourth 1995, 4th one-fourth 1996 to 2nd one-fourth 1998 ) , means that investors expect to acquire higher returns than portfolio return during the cited periods. Therefore, these periods are attractive for less hazard averse persons. In some other periods which the systematic hazard is lower than ( 1 ) , investors expect to acquire lower returns in comparing with the portfolio return ; particularly this tendency is discernible at the terminal of research period. The positive tendency of alterations at the first one-fourth of ( 2001 ) and ( 2003 ) , the 3rd one-fourth of ( 2004 ) and the 2nd one-fourth of ( 2005 ) are due to public civilization reenforcing for utilizing stock market as a suited market to put, set uping the local stock markets, bettering and modulating the commanding Torahs for stock market, developing agent forums, and investing consulting companies.
As shown in figure ( 7 ) , the systematic hazard is lower than ( 1 ) from the 3rd one-fourth of ( 2005 ) to the 2nd one-fourth of ( 2007 ) , this tendency was coincident with the recession periods of Iran ‘s stock market. The chief grounds of this recession were the direction alterations in economic system, political dazes resulted by economic system countenances, province constructions of Iran ‘s economic system and the dependence of many companies to the authorities which decreases the appliers to finance in stock market.
Figure 7. Changes Trend of Stock Systematic Risk in Stock Market
Probes on the tendency of expected return rate and systematic hazard alterations in the stock market ( figure 8 and 9 ) , show the co-ordinated motions between systematic hazard and expected rate of return from the first one-fourth of ( 1995 ) to the first one-fourth ( 1996 ) , and besides from the 2nd one-fourth ( 2001 ) to the 2nd one-fourth of ( 2004 ) . In the other periods the relationship between hazard and expected return was opposite, so by increasing hazard, return lessenings and frailty versa, and the extremum of this tendency observed at the terminal of research period. This position likely is due to existence the political dazes resulted by macro direction alterations of authorities, and besides economic countenances.
Figure 8. Changes Trend of Expected Return Rate of Stock Market
The consequence of proving the significance of the systematic hazard and expected return rate in stock market indicates that the return coefficient is important in error degree of 5 % .
In other words, P-Value is equal to ( 0.0345 ) , so hypothesis is rejected and hypothesis, based on the important relationship between systematic hazard and expected return rate, is accepted. The return coefficient of stock market is negative similar to the currency market ( equal to -4.657013 ) which shows the opposite relationship between hazard and expected return during the research period. This consequence is non compatible with the cardinal rule of CAPM, which is “ higher hazard higher return ” . The important coefficient ( ) of arrested development besides is equal to 0.091 that is really low.
Figure 9. Changes Trend of Expected Return and Systematic Risk of Stock Market
As shown in the figure ( 10 ) , the systematic hazard and existent return rate despite the primary quarters, have coordinated fluctuations at some periods ( i.e. the 2th One-fourth of 1998 to the first one-fourth 2000, 2th one-fourth of 2001 to the 4th one-fourth 2003, and the 4th one-fourth 2004 to the terminal of research period ) .
The arrested development consequences between systematic hazard and existent return explains accepting of hypothesis in the mistake degree of ( 5 % ) . It means that P-Value refering to this testing is equal ( 0.15 ) , so hypothesis is accepted. The R-squared ( 0.043 ) shows that important coefficient of the arrested development is undistinguished ; meanwhile the incline of equation line with sum of ( 0.13 ) is positive. The F statistic is ( 2.13 ) that shows the arrested development is non important, despite the research sample which detects there is a positive relationship between hazard and existent return and emphasizes on attraction of the market for risk-averse persons, this linkage is non important statistically.
Figure 10. Changes Trend of Real Return and Systematic Risk of Stock Market
Real Estate Market
The existent estate market is perceived as an of import market in Iran economic system. It is considered as a formal market that attracts the excess financess of investors ( particularly in recession periods of other markets ) .
As shown in figure ( 11 ) , estate market has been faced to the systematic hazard higher than ( 1 ) in many quarters such as the 2nd one-fourth of ( 1995 ) , the first and 3rd one-fourth of ( 1996 ) , the first one-fourth of ( 1998 ) , and so on. This means that if investors invest in this market, they expect to acquire higher returns than portfolio return during the mentioned periods, so they willingly accept the higher hazard for acquiring higher returns. Furthermore, the research consequences show that the systematic hazard is lower than portfolio return ( lower than 1 ) in some other periods, particularly during ( 2006 ) and ( 2007 ) which are coincident with the recession of the estate market.
In fact, when the systematic hazard is low it decreases the persons involvement to put in this market because they know they will derive less return, and the lessening in investings in this market will take to the recession of estate market.
Figure 11. Changes Trend of Stock Systematic Risk in Estate Market
The tendency of expected rate of return and systematic hazard is shown in Figure ( 12 ) . It indicates that except for some quarters ( 1995, 1996 and 1997 ) , estate market is wholly in equilibrium, and the coordination between hazard and expected return is really high. But coordination between these two variables comparatively diminutions at other periods, particularly at the terminal of research periods. In other word, investors expect to increase their expected return rate with increasing the systematic hazard and frailty versa, but it really does n’t go on at some periods.
Figure 12. Changes Trend of Expected Return and Systematic Risk of Estate Market
The additive arrested development is applied in order to make more precise probes on the relationship between hazard and expected return. The consequence of arrested development trial shows that return coefficient is important in error degree of 5 % and P-Value is equal to 0.000, so hypothesis is rejected and against hypothesis is accepted, ( the hypothesis related to the being of the positive relationship between expected return and systematic hazard is accepted because the systematic hazard coefficient for this market is positive ) .
In other universes, if persons invest their excess financess to acquire return, they will acquire higher returns harmonizing to the higher hazard and frailty versa. The arrested development important coefficient is equal to ( 0.32 ) that comparatively is acceptable sing the being of merely one descriptive variable in the arrested development equations.
Figure 13. Changes Trend of Real Return and Systematic Risk of Estate Market
Figure ( 13 ) shows the different fluctuations during research period, the positive alterations was experienced from the first the periods to the first one-fourth of ( 1996 ) , so uncoordinated tendencies started till the first one-fourth of ( 2006 ) , this tendency so has improved from ( 2006 ) to the terminal of research period. Furthermore, alterations of hazard and existent return in some of period show that positive return has been faced to negative hazard ( undistinguished hazard near to zero ) . The least sums of existent return are in the 2nd one-fourth of ( 2005 ) and ( 2006 ) which are the recession periods of estate market in Iran. After this period, the existent return has increased from the fourth one-fourth of ( 2006 ) , it was coinciding with the monetary value addition of this market ‘s assets.
The arrested development consequences of existent rate of return and systematic hazard in Iran ‘s estate market shows that incline of the line is positive, and the P-Value is ( 0.843 ) in mistake degree of ( % 5 ) , so hypothesis is accepted. Furthermore, important coefficient ( ) is equal to ( 0.0008 ) that is really undistinguished. So there is no important relationship between existent return and systematic hazard in Iran ‘s estate market during this research period.
In Iran economic system, the gold market is an of import replacement for formal markets, so that recession of other markets directs the excess financess toward this market. The alterations tendency of systematic hazard ( figure 14 ) shows the considerable fluctuations which are chiefly near to ( 1 ) , intending that if persons invest the excess financess to the market, they will anticipate to acquire the same return as the portfolio return. This tendency about continued to the most of the quarters, but it was stopped from the 2nd one-fourth of ( 2005 ) onwards with intense fluctuations. The most of import ground might be the alterations in oil monetary value, policies of cardinal bank to publish money ( unfastened market purchase ) , and direction alterations in macro degrees of the economic system.
The alterations tendency of expected return rate indicates the coordination of returns with the corresponding hazards in gold market.
Figure 14. Changes Trend of Systematic Risk in Gold Market
Figure ( 15 ) detects this market is comparatively in equilibrium and there is a logical relationship between hazard and return.
Figure 15. Changes Trend of Real Return and Systematic Risk of Gold Market
The consequences of the arrested development shows that P-Value is equal to ( 0.3 ) , so the hypothesis is accepted, means that there is no important relationship between systematic hazard and expected return rate in Iran ‘s gold market.
Probe on the relationship between hazard and existent return in this market besides shows similar consequences, the P-Value of the arrested development is equal to ( 0.21 ) , and hypothesis is accepted ( the existent return does n’t hold any logical or important relationship with systematic hazard in Iran ‘s gold market ) .
Table 2. The Regression Result of Research Hypotheses
A. Dependant: Expected Tax return
B. Dependant: Real Tax return
Harmonizing to the consequences of Table ( 2 ) , it seems that merely currency market has consistent consequences, and the hazard is important in both state of affairss.
Estate market, stock market and gold market are non important merely when the existent return is used as dependent variable, although the gold market is non important at all even when the expected return is considered as a dependant variable.
Numerous grounds can explicate the un-equilibrium of Gold market in the two state of affairss, which are categorized in the three following statues ;
Investors can easy come in this market in comparing with other markets, ( particularly stock market ) . Traveling to this sensitive market demands low financess, and besides low investing cognition, so stagnation of other markets will do to travel the excess financess to the Gold market. As a consequence, fluctuations of any other market quickly impact its minutess and enforce the instantaneous dazes on this market.
On the other manus, intense dependance exist between fluctuations of oil monetary value and the gilded monetary value in international markets ( by and large ) and Iran ‘s market ( peculiarly ) . Since the oil monetary value chiefly changes in seconds, it quickly affects the gold market and will do this market un-equilibrium.
Inefficient pecuniary policies of cardinal bank of Iran to command the instantaneous dazes resulted by fluctuations of oil monetary value, and besides come ining irregularly financess from other market ( at status of their recession ) to this market.
Section VI: Decision
In this survey, the relationship between systematic hazard and return in four selected markets of Iran economic system were analyzed using the capital plus pricing theoretical account ( CAPM ) .
To mensurate the systematic hazard of these four selected markets ( Gold, Currency, Real Estate and Stock market ) , foremost the needed variables for the CAPM theoretical account were collected. Required variables were rate of return for each market, hazard free return, and market index.
In the computation of company ‘s stocks systematic hazard, entire return of the stock market or entire return of the specific industry is considered as an index. Here besides the computation of each plus ‘s return and hazard free return was no major job, the chief job was choosing an appropriate index, because when we look at the choice of an appropriate index organize the macro attack, the chosen index should bespeak the mean return of the investings in the full economic system.
In this instance, for each of the four markets the same return will be expected, besides an investor can put in every other markets of the economic system and obtain the certain return. Therefore, the mean return of entire economic system could be a suited placeholder for market index, because the economic growing achieved from mean return of all markets ‘ returns in an economic system, and one expects that with puting in each of the economic system markets obtain an mean return equal to the economic growing.
After ciphering the systematic hazard and analysing its tendency, this survey found that in all four selected markets systematic hazard fluctuations increase well from ( 1995 ) to ( 2007 ) . These consequences might be because of unsure state of affairss of the state during countenances, alterations of direction squads at determination devising degrees in Iran and besides inefficient policies of cardinal bank to command the monetary value fluctuations in these markets.
Tendency of expected return alterations in the currency market indicates that there is no positive relationship between hazard and return, and besides found that alterations of hazard and return toward each other is non in tandem ( despite the CAPM construct ) . Some grounds might be because of control policies applied from cardinal bank of Iran to the currency market or attraction of other markets in some periods to the investors, individual pricing policy of currency, and no chance for arbitrage after 2001.
Changes tendency of systematic hazard in the stock market indicated the mentioned hazard from the first one-fourth ( 1999 ) to the terminal of research period, except in six quarters, were lower than ( 1 ) , which means the stock market was attractive for risk-averse investors during that period. The graph was negative or close to zero at the most mentioned periods, the extremum was from ( 2005 ) onwards which are matching to the recession periods of stock market. In other universe, this tendency is consistent with stock market recession from ( 2005 ) .
Respect to the analyzes of the relationship between the systematic hazard and the existent return in the Currency market and Stock market, this survey found that in each of these two markets there is a negative relationship among systematic hazard and expected return and besides the existent return ( except the relationship between hazard and existent return in stock market ) In other words, this form in these two markets is non consistent with CAPM.
Although arrested developments done for look intoing those relationships in Estate market and the gold market shows that positive relation exists between systematic hazard and expected return, but between systematic hazard and the existent return in these two markets no important relationships were found ( except the relationship between hazard and expected return in Estate market ) .
So this survey concludes that in the fiscal markets of Iran economic system, ( Currency and Stock markets ) , taking more systematic hazards do non vouch the higher returns, but this outlook exists in physical assets markets ( Estate and Gold market ) . Therefore CAPM prognosiss are non compatible in the fiscal markets of Iran economic system. It might be because the fiscal markets of Iran are non developed really good, or investors are non rather familiar with the market. Besides the higher returns of physical markets encourage people to put in Estate and Gold market alternatively of fiscal markets.