DUAL BETAS ON THE

Abstract

Since the study by Fama & French (1992) there has been an academic debate about the usefulness of the Capital Asset Pricing Model (CAPM). Some researchers believe that the CAPM should be abandoned for a new model, like the dual beta model, which provides a better explanation of share returns than the traditional CAPM. The purpose of this research is to identify whether beta and the market-effects (i.e. the size, value and momentum effects) can explain share returns under different stock market conditions. If this proves to be the case, the findings could be used as a foundation towards the creation of a trading strategy for investors effectively to exploit these market-effects. This research shows that there is a significant non-symmetrical relationship between dual beta and realised returns. However, in the presence of the size and value terms, the dual beta relationship with realised returns becomes insignificant. It was also found that the size, value and momentum effects were present only in certain bull and bear market conditions