Theoretical and Empirical Asset Pricing : Evidence of Korean Economy

This paper investigates a cross-sectional risk-reward relationship (Sharpe-Lintner-Mossin paradigm), Fama and French (1992) size effect and conditional CAPM (Pettengill, 1995). It adopts Fama and Macbeth (1973) methodology and uses data of listed Korean stock (KOSPI). Without considering conditional CAPM, I notice no evidence to support Sharpe-Lintner- Mossin paradigm. Equally the role of size is statistically insignificant. Even though they exist a few discrepancies between this findings and those of Fletcher (1997) the result of conditional CAPM are same (Pettengill et al., 1995). That is, beta is significantly positive in up market and significantly negative in down market. The effects in both up and down markets is asymmetrical. The empirical findings back by previous studies found CAPM breathing and not dead as suggested by others findings