The Impact of Market Risk Variation on the Ability of Capital Asset Pricing Model To Explain the Change in Stock Returns

  The purpose of this study is determine the effect of the degree of stock market risk, at different estimation periods for capital asset 4pricing model (CAPM) variables, on the ability of the CAPM to explain the change in stock returns, applied on the Egyptian stock market. Where the researcher assumes that the different degree of market risk (high  low) may affects the ability of capital asset pricing model to explain the change in the stock returns. Especially most of the literature reviews of capital asset pricing model were not exposed to the conditions of measuring the returns. That is the approach of the present study was to test the theory of capital asset pricing model at a different degree of market risk and different basis of estimation periods of capital asset pricing model variables (1,3,6,12 months). Because the Egyptian stock market is one of the emerging markets, the study of capital asset pricing model ability, to predict stock returns at a different degree of market risk and different basis of estimation periods for capital asset pricing model variables are critical. This is exposing in this study.This study is based on a different approach represented in testing the ability of the capital asset pricing model to explain the change in the stock returns, according to a different degree of market risk (high – low).The EGX30 index was used as the most important indicator to measure the market index.70% of the strongest stocks were selected within the index for the study tests during the period from 01/01/2009 to 31/03 /2015.