CAPM Model, Beta and Relationship with Credit Rating

Capital asset pricing model (CAPM) is one of the most significant models in finance. The expected return for a stock is related to Beta which is the measure of market especially systematic risk. Recent researches show that Beta calculated by CAPM is very sensitive variable. Many studies have investigated the influence of variables to Beta, e.g., credit rating. The credit rating agencies as providers of information have a crucial importance for market participants and regulators. The aim of this contribution is to present the key studies examined linkage between credit rating and systematic risk as well as to present CAPM model, credit rating measures and their advantages and disadvantage.