An Analysis of CAPM in the Indian Equity Market

Abstract

The Capital Asset Pricing Model the pioneer model for the pricing of an asset has been challenged in the last few decades with the evolution of new models. The validity of the model which considers beta as the single factor to explain the return of an asset is being questioned by many researchers. The model said that if the beta is high then the return of the security will also be high and vice versa. In today's scenario, there are so many factors that affect the return of an asset. The present study examines the model whether it still holds the power to explain the return of an asset or not. The study is conducted on daily and monthly secondary data which were collected from BSEP500 for 25 years from April 1993 to March 2018. The study has adopted regression methodology to analyze the data. It is found that CAPM is unable to explain the risk-return relationship so concluded inapplicability of the model in the Indian equity market.