Authors

• Javier DePeña(jdepena@unav.es)
• Luis A. Gil-Alana(alana@unav.es)
  School of Economics and Business Administration, University of Navarra

Abstract
In this paper we study the suitability of the CAPM to the Spanish Stock Market Interconnection System (SIBE) for the period 1988-2000, by means of time series and cross-section multivariate tests. Even though there is not enough empirical evidence to reject this model, it is shown that the relation between risk beta and stock returns is weak. Therefore, we look for several fundamental variables using Fama and MacBeth OLS (Ordinary Least Squares) and LTS (Least Trimmed Squares) estimators which could explain, with or without beta, the cross-section of stock returns. We conclude that there is a strong earning-price ratio effect in the Spanish Stock Market and that beta is able to explain the cross-section of expected returns, not solely, but jointly with earningprice ratio. On the other hand, there is neither size nor book-to-market ratio effects. However, there is evidence of turn-of-the year effect, which suggests tax-loss selling and window-dressing phenomena.

Classification JEL:G12

Keywords:CAPM; anomalies; tax-loss selling; window-dressing

Number of Pages:27

Creation Date:2003-01-01

Number:null/03