Risk and return in the Spanish stock market

In this paper we use Spanish data to test the restrictions that a dynamic APT-type asset pricing model imposes on the risk-return relationship. For monthly returns on ten size-ranked portfolios and a value-weighted index, we find that those restrictions are rejected for different versions of the model over the period 1963-1992, as well as over two subsamples. The evidence for the conditional models suggests that the Spanish stock market is segmented, which probably reflects the fact that it is only deep for a few stocks.