Risk and return: CAPM and CCAPM

Abstract

Can consumption growth serve a better measure of risk than market beta? This paper tests the performance of the traditional CAPM and consumption-based CAPM (CCAPM) across seven industry sub-sectors in the emerging Taiwan stock market. The empirical performance of the CAPM is encouraging. The relationship between stock returns and beta is statistically significant and the coefficient of determination of the regression is high across all seven sectors of the Taiwan stock market. In comparison, the CCAPM fails to explain the assets market in Taiwan although the consumption beta should offer a better measure of systematic risk theoretically.