| Summary: | 碩士 === 國立臺灣大學 === 國際企業學研究所 === 101 === Capital asset pricing model (CAPM) has been discussed by so many scholars, and beta has been a controversial measure of risk since a half century ago.
In this paper, we focus on two parts. (1) Is beta a good measure of risk? We examine this by measuring if there is a positive relationship between betas and monthly returns in industries during the period from January 2003 to March 2013. (2) Is beta a good tool for portfolio selection in TAIEX? We examine this by applying the strategy developed by Estrada and Vargas (2012) to invest in portfolios during the period from January 2003 to March 2013. Our focus is on economic significance.
The result shows that beta is not strictly positively related to monthly returns in industries during our sample period, but there is a positive tendency between betas and returns. Based on the positive tendency between betas and returns, we apply the strategy developed by Estrada and Vargas (2012) on TAIEX between January 2003 and March 2013, and we find that the strategy significantly outperforms a passive investment.
According to the results, we find that beta is a good measure of risk and that beta is a valuable tool for portfolio selection.
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