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Khalafalla Ahmed Mohamed Arabi - Professor of Econometrics, Department of Econometrics & Social Statistics, Faculty of Economics and Administrative Sciences, University of Bakht Alruda, Sudan


This paper investigates the validity of the capital asset pricing model CAPM, the arbitrage pricing theory APT, and the three factor model of Fama and French at Khartoum Stock Exchange KSE that is. Cross sectional data of seven banks and Telecommunication Company (compose 97 percent of the KSE) for the period 2005-2011 was used. Empirical results showed that volatility computed via TARCH indicates the impact of the bad news on the conditional is twice as good news; in addition to the preference of generalized least squares over covariate (fixed effects) model as an estimation technique. Results are against the CAPM because the CAPM’s prediction that the intercept should equal zero has not been attained, and its main assumption i.e. the security market is efficient is violated. The APT showed no reaction to news from macroeconomic variables. Nevertheless APT out-performed Fama-French model and CAPM.

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