Is CAPM Dead in Emerging Market? – Indian Evidence
The IUP Journal of Financial Risk Management, Vol. XI, No. 3, September 2014, pp. 7-17
Posted: 22 Jul 2015
Date Written: July 20, 2015
This paper discusses the empirical validity of Capital Asset Pricing Model (CAPM) in an emerging market context. Covering the recent global financial period, the study aims to investigate the relation between stock returns and market betas in India under a cross-sectional regression framework. The regression results find insignificant inverse risk (beta)-return relation during the overall period of the study. During sub-period analysis also it finds that risk-return relationship is significant only at the time of bull movements in the market. The intercept parameter is positive and significantly different from zero which shows the dominance of non systematic factors contributing variations to stock returns in India. The study ultimately concludes that CAPM cannot be a suitable descriptor of asset pricing in emerging markets now.
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