CAPM anomalies and the efficiency of stock markets in transition: evidence from Bulgaria

Abstract

This paper investigates empirically the relation between average return and beta in the Bulgarian stock market. First, using a sample of common stocks traded on the BSE-Sofia, the study examines the effects of infrequent trading on beta estimates, measured from daily, weekly and monthly return intervals. It aims to find out whether the differences in the stability of systematic risk estimates can be explained by infrequent trading. Second, the study investigates the role of beta and other commonly recognized variables (size, book-to-market equity, asset-to-market equity, asset-to-book equity and price) in explaining cross-sectional variations in average returns over the period from January 1998 to December 2002. Evidence indicates that beta, size, market and book leverages are priced, whereas significant book-to-market equity and price effects are not observed on the BSE-Sofia. These findings are in contrast to the evidence from other markets that the relation between average return and beta is flat, and size and book-to-market equity effects are significant.