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Validity of the capital assets pricing model: evidence from the Indian companies – the NSE India

Paul, Thomas M. and Akua, F.A. (2013) Validity of the capital assets pricing model: evidence from the Indian companies – the NSE India. European Journal of Economics, Finance,and Administrative Sciences, 1 (60). pp. 154-167. ISSN 1450-2275

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    Abstract

    Capital Asset Pricing model (CAPM) is widely researched, tested, and paradoxically both generally accepted and rejected model of asset pricing. From its beginning (1964) it has occupied the pride of place among the financial economist’s research, and still part of the text books on finance in the leading business schools all over the world. The study covered monthly data of Indian companies’ from the ‘National Stock Exchange’ (NSE) for the period 2005 to 2009. In our first model, betas are estimated where the risk free rate is the intercept term. The results show that for the State Bank Of India(SBIN), HDFC bank, and Tata Motors, the betas are more than one and significant, and for the Reliance,it is near one, and for Infosystch, it is less than one and statistically significant . The second model of ‘ Jen’s alphas’ results show that for only SBIN, and Reliance group, ‘Jensen’s alpha ‘ is positive, and for other three companies, it is negative. For positive values of ‘ Jensen’s alpha, the conclusion is that those companies ear ned return more than the companies of similar betas, and for negative values, those companies earned less than the companies of similar betas. Over the sample period, for SBIN, HDFC, and Reliance companies, the actual return is are greater than the required returns, and for Tata Motors,, and Infosystch, the actual return is less than the required returns .There is an equity risk premium for many of the Indian securities during the sample period. On the whole, the CAPM model could satisfactorily explain the risk-return relationship in the Indian Stock market.

    Item Type: Journal Article
    Uncontrolled Keywords: Capital Asset Pricing Model (CAPM), Required Return, Betas, Risk modeling, Indian Companies, Stock markets, Risk and Returns . JEL Classification Codes :G11, G12.G32
    Subjects: H Social Sciences > HG Finance
    Divisions: Faculty of Business and Economics (FBE) > School of Accounting and Finance
    Depositing User: Thomas Paul
    Date Deposited: 08 Aug 2014 13:11
    Last Modified: 06 Jul 2016 11:26
    URI: http://repository.usp.ac.fj/id/eprint/7563
    UNSPECIFIED

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