The beta anomaly and the conditional capm in the Norwegian stock market

Abstract

In this Master thesis, we investigate the relation between systematic risk and returns in the Norwegian Stock Market between 1986-2014. In an efficient market, market participants realize above average returns only by taking on above average risks. However, prior studies find that strategies that sell high-beta stocks and buy low-beta stocks have significantly negative unconditional Capital Asset Pricing Model (CAPM) alpha. In our study, we do not find this relationship to be present in Norway, and our findings are also robust to volatility sorted portfolios. Further, by utilizing the methodology of Cederburg & O’Doherty (2016), we show that the conditional CAPM does not perform better than other static empirical pricing models in Norway.