Capital Asset Pricing through CAPM Model

The results of experimental studies on the capital market indicate that pricing the securities in the capital market is in a way that those, who have taken more risk, have gained higher return in the long term. The Capital Asset Pricing Model (CAPM) is one of the popular models explaining the relationship between the risk and return. This paper seeks to explain the theoretical principles of this model as well as indicating whether there is a simple positive linear relationship between the systematic risk and return on common stock on Tehran Stock Exchange or not. Therefore, the data of stock return in the sample companies are collected for the years 2006–2011 and the required test are performed. The research results indicate that the Capital Asset Pricing Model can explain the behavior of return on the stock exchange at short intervals, and the relationship between the risk and return on Tehran Stock Exchange proves the main claim of Capital Asset Pricing Model for linearity of return function conditioning applying the weekly time data.