Capital market of Bulgaria: testing different CAPM corrections

Abstract

The present study makes comparison in the usage and the level of accuracy of different methods for calculation of the expected return. The presented methods are based on CAPM, but with different corrections. We are going to test the traditional CAPM of Sharpe (1963) and Lintner (1964), the downside D-CAPM proposed by Estrada (2002), and three methods presented by the authors of this study. The first method uses combination of downside and upside beta to compute the risk in CAPM; the second uses the absolute deviation as a measure of risk; the third method integrates skewness in CAPM, but makes it by using different approach than familiar downside methods. The skewness is added as additional multiplier in the CAPM.