Empirical test of the Capital Asset Pricing Model (CAPM) on the equity market of Nairobi

Dr. CHABI Bertin

Volume : VI, Issue : I, January - 2016

Empirical test of the Capital Asset Pricing Model (CAPM) on the equity market of Nairobi

Dr. Chabi Bertin

Abstract :

This study targets testing the validity of the CAPM on an African market: the securities market of Nairobi. The CAPM is a model which allows explaining the relation between risk and yield on markets. Many investors are confronted with the challenge of determination with certainty of the yields on their investments as well as with the choice of an optimal portofolio. A model as the CAPM, through which is capable of predicting the yields on an investment, is then of a major importance. Thus the objective of this study was to verify if the CAPM can be applied to the equity market of Nairobi. The study is based on the computation of the beta and the positive yields of forty five listed companies on the Nairobi stock exchange. A model of simple regression was used. Tests of significance in a 95 % confidence level were made to appreciate the results of the regression. The analysis of the results revealed a non–applicability of the CAPM to the Nairobi’s securities market. The results of the study do not confirm the basic theory of the model according to which there is a straight–line relationship between the risk and the yield of a stock.