Study on Determining Whether Stock is Under–Priced or Over–Priced Based on Capm Model (A Case Study of Sensex Companies)

Dr. Jeelan Basha.V

Volume : IV, Issue : XI, November - 2014

Study on Determining Whether Stock is Under–Priced or Over–Priced Based on Capm Model (A Case Study of Sensex Companies)

Dr. Jeelan Basha. V

Abstract :

The capital asset pricing model (CAPM) of William Sharpe (1964) and John Lintner (1965) marks the birth of asset pricing theory (resulting in a Nobel Prize for Sharpe in 1990). Four decades later, the CAPM is still widely used in applications, such as estimating the cost of capital for firms and evaluating the performance of managed portfolios. The objectives of the study are to find out whether market price of each stock of BSE Sensex companies is undervalued and to provide findings/ results based on analysis. In view of the objectives of the study listed above, exploratory research design has been adopted. The study is based on secondary data covering from 2000 to 2014. It consists of closing annual market price of each share of companies under BSE Sensex. They are used for calculating alpha, beta and return on market. The data has been collected from money control.com and various other reports like magazines, journals, published and books .  It is concluded that CAPM is the benchmark model in the real world. Most corporations use it. Everyone will expect to understand the CAPM.