Volume : IV, Issue : IV, April - 2014

CAPM – Empirical Study of NSE stocks

Khushboo Raheja

Abstract :

 One of the significant contributions to the theory of financial economics occurred during the 1960s, when a number of researchers, among whom William Sharpe was the leading figure, used Markowitz’s portfolio theory as a basis for developing a theory of price formation for financial assets, the so–called Capital Asset Pricing Model (CAPM). The CAPM formula states that the return on each risky security or portfolio is simple the risk free rate plus some risk premium for investing in the risky security. This paper examines the applicability of CAPM on the emerging markets (India) to see whether the return of risky securities is simply dependent on Risk–free interest and beta or there are other economic factors associated.

 The model takes into account the asset\\\'s sensitivity to non–diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk–free asset. CAPM “suggests that an investor’s cost of equity capital is determined by beta.” The CAPM has been extensively employed for estimating cost of capital and evaluating the performance of managed funds.

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Article: Download PDF   DOI : 10.36106/ijar  

Cite This Article:

Khushboo Rahejas CAPM – Empirical Study of NSE stocks Indian Journal of Applied Research, Vol.IV, Issue. IV

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