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Abstract
This article tests the validity of Capital Asset pricing Model and compares the results of 16 periods including 14 sub periods which comprises 3 years each for the prediction of the expected returns in the Indian capital Market. The tests were conducted on portfolios having different security combinations. By using Black Jenson and Scholes methodology (1972) the study tested the validity of the model for the whole and different sub periods. The study used daily data of the BSE 100 index for the period from January 2001 to December 2010. Empirical results mostly in favor of the standard CAPM model. However, the result does not find conclusive evidence in support of CAPM
Highlights
Globalization and international investments to Indian capital market over the past decade made investment arena tougher and investment decisions complex
This study has four testable objectives. It checks the empirical validity of the Capital Asset Pricing Model (CAPM) in Indian stock market and ascertains the relationship between return of securities and market return. It compared whether expected rate of return is linearly related with systematic risk and the difference in results while using different security combinations
This study is unique in the sense that it is difficult to find a study, which tested the validity of CAPM in Indian capital market by using different portfolio combination
Summary
Globalization and international investments to Indian capital market over the past decade made investment arena tougher and investment decisions complex. It checks the empirical validity of the CAPM in Indian stock market and ascertains the relationship between return of securities and market return. It compared whether expected rate of return is linearly related with systematic risk and the difference in results while using different security combinations. (Rahman et al, 2006) in Bangladesh market, (Andor et al, 1999) Hungarian capital market found positive relationship between beta and ex-post return, concluded that CAPM valid for these markets Besides this (Majumdar et al, 2007) neither support nor reject (mixed result) the Capital Asset Pricing Model. There is dearth of studies in Indian context and is planned to examine the CAPM by using daily data of 70 companies listed in BSE100-index with two different combinations of portfolios
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