An Empirical Testing of Capital Asset Pricing Model in India

Abstract

This study focuses on empirical testing of Capital Asset Pricing Model (CAPM) in the Indian equity market. The study is conducted for a period of 10 years ranging from January 2004-December 2013 and the data is daily data for 10 years. This study is done with the help of rolling regression methodology, which helps in giving robust results. Rolling regression is applied on a rolling sample of three years where a window of three years keeps moving for a quarter. Further, the model developed for the second stage regression is a constrained model, in which the intercept term is assumed to be zero. A comparison between the developed model and the traditional model, has been made. The results show that CAPM is very much significant in the Indian equity market and the model developed in this study, performs better than the traditional model.