Ingeniare. Revista chilena de ingeniería
On-line version ISSN 0718-3305
DIAZ CONTRERAS, Carlos A and HIGUERA CARTES, Freddy H. Empirical test of the CAPM in the Chilean stock market. Ingeniare. Rev. chil. ing. [online]. 2012, vol.20, n.2, pp. 255-266. ISSN 0718-3305. http://dx.doi.org/10.4067/S0718-33052012000200012.
The capital asset pricing model (CAPM) is one of the most used models in practice to determine the risk premium of an individual asset or portfolio. This paper tests the CAPM in the Chilean stock market using the time series methodology and the generalized method of moments to test mean-variance efficiency. This work uses monthly returns of individual stocks between 1997 and 2007 and considers an equally weighted portfolio as a proxy for the market portfolio. The results show that the CAPM explains successfully the cross section of expected stock returns in Chile.
Keywords : Cost of equity; CAPM test; time series methodology; seemingly unrelated regressions; generalized method of moments.