The Capital Asset Pricing Model: An Empirical Test on Indian Stock Market
Journal Title: International Journal of Management, IT and Engineering - Year 2018, Vol 8, Issue 1
Abstract
In this paper, the Capital Asset Pricing Model (CAPM) has been applied to the Indian Stock Market using monthly stock returns from 50 companies listed on the Bombay stock exchange (BSE) from October 2012 to October, 2017.Individual securities have been combined into portfolios so that the precision of the beta estimates can be enhanced. The BSE-200 share index is used as a proxy for the market portfolio. India Govt Bond Generic Bid Yield 10 Year rate is used as the proxy for the riskfree asset. The results validate the CAPM’s predictions that higher risk (beta) is associated with a higher level of return. However the study contradicts that the intercept should be equal to zero when estimating SML. This in effect, gives mixed response to the application of CAPM as far as India is concerned.
Authors and Affiliations
Dr. Rupinder Katoch
Keywords
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