Menu Expand



Khataybeh, M., Abdulaziz, M., Marashdeh, Z. Cross-Sectional Relationship Between Beta and Realized Returns in Emerging Markets. Applied Economics Quarterly, 65(2), 115-137.
Khataybeh, Mohammad A.; Abdulaziz, Mohamad and Marashdeh, Zyad "Cross-Sectional Relationship Between Beta and Realized Returns in Emerging Markets" Applied Economics Quarterly 65.2, , 115-137.
Khataybeh, Mohammad A./Abdulaziz, Mohamad/Marashdeh, Zyad: Cross-Sectional Relationship Between Beta and Realized Returns in Emerging Markets, in: Applied Economics Quarterly, vol. 65, iss. 2, 115-137, [online]


Cross-Sectional Relationship Between Beta and Realized Returns in Emerging Markets

Khataybeh, Mohammad A. | Abdulaziz, Mohamad | Marashdeh, Zyad

Applied Economics Quarterly, Vol. 65 (2019), Iss. 2 : pp. 115–137

3 Citations (CrossRef)

Additional Information

Article Details


Author Details

Khataybeh, Mohammad A., Assistant Professor, Department of Finance, The University of Jordan.

Abdulaziz, Mohamad, Finance and Administrative Manager at The Bankers For Brokerage And Financial Investments.

Marashdeh, Zyad, The Hashemite University, Jordan.

Cited By

  1. Female representation on the boards of directors of non-financial companies

    Marashdeh, Zyad | Alomari, Mohammad W. | Khataybeh, Mohammad | Alkhataybeh, Ahmad

    Journal of Governance and Regulation, Vol. 10 (2021), Iss. 2 P.44 [Citations: 9]
  2. Board characteristics and firm performance: The case of Jordanian non-financial institutions

    Marashdeh, Zyad | Alomari, Mohammad W. | Aleqab, Mahmoud Mohmad | Alqatamin, Rateb Mohammad

    Journal of Governance and Regulation, Vol. 10 (2021), Iss. 3 P.150 [Citations: 9]
  3. Country or bank-specific factors: A study to explain bank performance

    Marashdeh, Zyad | Omet, Ghassan | Haddad, Fayez

    Corporate Governance and Organizational Behavior Review, Vol. 5 (2021), Iss. 2 P.66 [Citations: 2]


  1. Al Refai, H. (2009): “Empirical Test of the Relationship between Risk and Returns in Jordan Capital Market.” SSRN Electronic Journal, [online] 1443367. Available at:  Google Scholar
  2. Alqisie, A./Alqurran, T. (2016): “Validity of Capital Assets Pricing Model (CAPM) (Empirical Evidences from Amman Stock Exchange).” Journal of Management Research, 8 (1), 207–223.  Google Scholar
  3. Baghdadabad, M./ Glabadanidis, P. (2013): “Average Drawdown Risk and Capital Asset Pricing.” Review of Pacific Basin Financial Markets and Policies 16 (04), 1350028  Google Scholar
  4. Bekaert, G./Erb, C. B./Harvey, C. R./Viskanta, T. E. (1988): “Distributional characteristics of emerging market returns and asset allocation.” The Journal of Portfolio Management 24 (2), 102–116.  Google Scholar
  5. Black, F./Jensen, M. C./Scholes, M./Jensen, M. (1972): “The capital asset pricing model: Some empirical tests.” In: Studies in the Theory Of Capital Markets, 79–121. New York: Praeger Publishers.  Google Scholar
  6. Cochrane, J. (2008): Asset Pricing (Revised Edition). Princeton: Princeton University Press.  Google Scholar
  7. Douglas, G. W. (1967): “Risk in the equity markets: An empirical appraisal of market efficiency.” Yale Economic Essays 9, 3–48.  Google Scholar
  8. Elsas, R./El-Shaer, M./Theissen, E. (2003): “Beta and returns revisited: evidence from the German stock market.” Journal of International Financial Markets, Institutions and Money 13 (1), 1–18.  Google Scholar
  9. Estrada, J. (2002): “Systematic risk in emerging markets: The D-CAPM.” Emerging Markets Review 3 (4), 365–379.  Google Scholar
  10. Estrada, J. (2007): “Mean-semivariance behavior: Downside risk and capital asset pricing.” International Review of Economics & Finance 16 (2), 169–185.  Google Scholar
  11. Fama, E. F./MacBeth, J. D. (1973): “Risk, return, and equilibrium: Empirical tests.” Journal of political economy 81 (3), 607–636.  Google Scholar
  12. Fang, H./Lai, T. Y. (1997): “Co‐kurtosis and Capital Asset Pricing.” Financial Review 32 (2), 293–307.  Google Scholar
  13. Ferson, W. E./Harvey, C. R. (1991): “The variation of economic risk premiums.” Journal of Political Economy 99 (2), 385–415.  Google Scholar
  14. Fletcher, J. (1997): “An examination of the cross-sectional relationship of beta and return: UK evidence.” Journal of Economics and Business 49 (3), 211–221.  Google Scholar
  15. Fletcher, J. (2000): “On the conditional relationship between beta and return in international stock returns.” International Review of Financial Analysis 9 (3), 235–245.  Google Scholar
  16. He, J./Ng, L. K. (1994): “Economic forces, fundamental variables, and equity returns.” Journal of Business 67, 599–609.  Google Scholar
  17. Hodoshima, J./Garza–Gómez, X./Kunimura, M. (2000): “Cross-sectional regression analysis of return and beta in Japan.” Journal of Economics and Business 52 (6), 515–533.  Google Scholar
  18. Kaplanski, G. (2004): “Traditional beta, downside risk beta and market risk premiums.” The Quarterly Review of Economics and Finance 44 (5), 636–653.  Google Scholar
  19. Karacabey, A. A./Karatepe, Y. (2004): “Beta and returns: Istanbul Stock Exchange evidence.” Investment Management and Financial Innovations 3, 86–90.  Google Scholar
  20. Lam, K. S. (2001): “The conditional relation between beta and returns in the Hong Kong stock market.” Applied Financial Economics 11 (6), 669–680.  Google Scholar
  21. Lintner, J. (1965): “The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets.” The Review of Economics and Statistics, 13–37.  Google Scholar
  22. Markowitz, H. (1952): “Portfolio selection.” The Journal of Finance 7 (1), 77–91.  Google Scholar
  23. Petersen, M. A. (2009): “Estimating standard errors in finance panel data sets: Comparing approaches.” The Review of Financial Studies 22 (1), 435–480.  Google Scholar
  24. Pettengill, G. N./Sundaram, S./Mathur, I. (1995): “The conditional relation between beta and returns.” Journal of Financial and Quantitative Analysis 30 (01), 101–116.  Google Scholar
  25. Roll, R. (1977): “A critique of the asset pricing theory’s tests Part I: On past and potential testability of the theory.” Journal of Financial Economics 4 (2), 129–176.  Google Scholar
  26. Roll, R./Ross, S. A. (1994): “On the cross-sectional relation between expected returns and betas.” The Journal of Finance 49(1), 101–121.  Google Scholar
  27. Saens, R./Sandoval, L. E. (2004): “The Conditional Relationship Between Portfolio Beta and Return: evidence from Latin America.” Cuadernos de Economía: Latin American Journal of Economics 122, 65–89.  Google Scholar
  28. Shah, N./Dars, J./Harron, M. (2015): “Asset Pricing Model Conditional on Up and Down Market for Emerging Market: The Case of Pakistan.” European Journal of Business and Management 7 (1), 15–27.  Google Scholar
  29. Theriou, N. G./Aggelidis, V. P./Maditinos, D. I./Šević, Ž. (2010): “Testing the relation between beta and returns in the Athens stock exchange.” Managerial Finance 36 ⁠(12), 1043–1056.  Google Scholar
  30. Theriou, N./Maditinos, D./Aggelidis, V./Theriou, G. (2007): “Testing the relation between beta and returns in the Athens stock exchange: A second attempt.” Journal of Economy and Business–International Scientific Publications, 1. ISSN 1313–2555.  Google Scholar
  31. Tsai, H. J./Chen, M. C./Yang, C. Y. (2014): “A time-varying perspective on the CAPM and downside betas.” International Review of Economics & Finance 29, 440–454.  Google Scholar
  32. Zhang, J./Wihlborg, C. (2010): “CAPM in Up and Down Markets Evidence from Six European Emerging Markets.” Journal of Emerging Market Finance 9 ⁠(2), 229–255.  Google Scholar



This paper examines the conditional risk-return relationship caused by the impact of using realized returns as a proxy for expected returns, which requires a separation of negative and positive market premiums. Following the methodology of Pettengill et al. (1995), we test the cross sectional relationship between beta and realized returns on the Amman Stock Exchange (ASE) for ten beta sorted portfolio over the period of January 1993 to December 2016. The empirical results suggest that the traditional two-pass approach produces an insignificant relationship between beta and realized returns in most of the sample period. However, when adjusting for negative market premiums, the results show a significant and consistent relationship for all the testing periods and samples. However, a guaranteed reward for holding extra risk occurred only in the period 2001 –2008, which suggests an assurance of positive risk-return tradeoff during bull markets.

JEL Classifications: G11, G12, G15, C21

Asset Pricing, Emerging Markets, Conditional Relationship, Beta, Market Premium

Table of Contents

Section Title Page Action Price
Mohammad A. Khataybeh / Mohamad Abdulaziz / Zyad Marashdeh: Cross-Sectional Relationship Between Beta and Realized Returns in Emerging Markets 1
Abstract 1
1. Introduction 1
2. Related Literature 3
3. Methodology 5
4. Data and Portfolio Construction 7
5. Findings and Discussion 8
5.1 Descriptive Statistics 8
5.2 Empirical Findings 9
5.2.1 Traditional Two-Pass Regression Approach 9
5.2.2 Conditional Approach 1
5.3 Positive Risk-Return Tradeoff 1
6. Conclusion 1
References 1
Appendix I 1
Appendix II 2