Abstract:

The purpose of this paper is to verify the standard CAPM for assets quoted on the Polish capital market. Besides unconditional relations, the study proposes the conditional relationships, considering different market volatility regimes and different market condition. The unconditional relations and conditional relations on market volatility are estimated in the downside risk approach as well. The unconditional cross-sectional regressions demonstrate that the downside beta outperform the classical one in asset pricing. While the market condition is incorporated as the conditioning variable the asset pricing is insignificant and independent on market volatility in conventional risk approach. When the downside systematic risk was arranged the positive and significant risk premiums were observed in two volatility regimes under third quartile threshold. The CAPM holds when models are tested based on both in high and low market volatility and market condition. Beta coefficients generate positive premiums in the up market and high and low volatility periods and negative premiums in the down market and high and low volatility periods.