Extending Capital Asset Pricing Model for Industrial Portfolio in Tehran Stock Exchange

In order to model, estimate and make a comparative analysis of the behavior of systematic risk, this paper, by using daily data from 09.28.1997 to 09.22.2015, estimates and extends the traditional Capital Asset Pricing Model for industrial portfolio in Tehran Stock Exchange, with DBEKK_GARCH and Shwert_Seguin Models. Findings show that estimated systematic risk for the Iranian industrial portfolio is time-varying. Therefore, using the traditional Capital Asset Pricing Model, with constant beta, may not be a good idea for modeling systematic risk and forecasting the expected returns of capital assets, as it may lead us to misleading results. Also findings show that the traditional CAPM and Shwert_Seguin models have almost identical forecast accuracy, although their accuracy is less than the DBEKK_GARCH model. The estimated systematic risk, from DBEKK_GARCH and Shwert_Seguin models, does not show any trend behavior over time.