International Journal of Financial Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Testing of Beta and Return in the Indian Capital Market


Affiliations
1 Principal, Bapuji Academy of Management & Research, Davangere, Karnataka
     

   Subscribe/Renew Journal


The study tests whether beta as envisaged in CAPM is the determinants of the security and portfolio returns. Further the study also tests whether the intercept of the CAPM is equal to the risk-free rate of return as envisaged in the standard form of theory. The study is based on BSE Sensex companies. The overall results, based on percentage and log returns show that the intercept is equal to the risk-free rate of return but the beta does not explain the variation in individual security returns and portfolio returns in Indian capital market. Therefore, we conclude that CAPM does not hold for the Indian market.

Keywords

CAPM, Intercept, Security/Portfolio returns, Beta, Risk-free Returns, Market Returns
Subscription Login to verify subscription
User
Notifications
Font Size

  • Ansari, Valeed A (2000). Capital Asset Pricing Model: Should We Stop Using It. Vikalpa, 25(1): 55-64.

  • Bark, Hee –Kyung K(1991). Risk, Return, and Equilibrium in the Emerging Markets: Evidence from the Korean Stock Market. Journal of Economics and Business, 43(4):353-362.

  • Black F, Jensen, M.C and Scholes, M (1972). Studies in Theory of Capital markets, (New York: Praeger).

  • Black, Fisher (1972). Capital Market Equilibrium and Restricted Borrowing. Journal of Business, 48(3), 444-445.

  • Black, Fisher (1993).Beta and Return. Journal of Portfolio Management, 20, 8-18.

  • Brown, Stephen J., and Warner (1985). Using Daily Stock Returns, The Case of Event Studies. Journal of Financial Economics, 14(2):3-31.

  • Cooper Michael J. Huseyin Gulen, Michael J. Schill (2008). “Asset Growth and the Cross-Section of Stock Returns,” Journal of Finance, 63(4), 1609-1651.

  • Fama E and J Mac Beth (1973). Risk, Return, and Equilibrium; Empirical Tests. Journal of Political Economy, 81: 607-636.

  • Fama, Eugene F, and Kenneth French R (1992). The Cross-section of Expected Stock Returns. Journal of Finance, 47: 427-465.

  • Fama, Eugene F. and Kenneth French R. (1993). Common Risk Factors in the Returns on the Stocks and Bonds. Journal of Financial Economics, 33(3), 3-56.

  • Fama, Eugene F. and Kenneth French R. (1996). The CAPM is Wanted, Dead or Alive. Journal of Finance, 51(5), 1947-1958.

  • Fama, Eugene F. and Kenneth French R. (1998). Value Verses Growth: The International Evidence. Journal of Finance, 53(6), 1975-1999.

  • Fama, Eugene F. and Kenneth French R. (2002). The Equity Premium. Journal of Finance, 57 (2), 637-659.

  • Gupta O P and Sehgal, Sanjay (1993). An empirical testing of Capital Asset Pricing Model in India. Finance India, 7: 863-874.

  • Harris, Robert S, Marston, Felicia C, Mishra, Dev R.and O’Brien Thomas J(2003).Ex Ante Cost of Equity Estimates of S&P 500 Firms: The Choice Between Global and Domestic CAPM. Financial Management, 32(3):51-66.

  • Kothari, S.P, J. Shanken, and R.P. Sloan(1995). Another Look at the Cross-section of Expected Stock Returns. Journal of Finance, 50:185-224. 17. Kothari, S.P., and Shanken Jay (1995). In Defense of Beta. Journal of Applied Corporate Finance, 8(4), 53-58.

  • Lakonishok, Josef, Andrei Shleifer, and Robert, Vishny W(1994). Contrarian Investment, Extrapolation and Risk. Journal of Finance, 49(5), 541-1578.

  • Lintner, John(1965). Security Prices, Risk, and Maximal gains from Diversification. Journal of Business,4, 294-419.

  • Madhusoodanan T. P. (1997). Risk and Return: A New Look at the Indian Stock Market. Finance India, 11(2), 285-304.

  • Manjunatha.T and Mallikarjunappa. T.(2006). An Empirical Testing of Risk Factors in the Returns on Indian Capital Market. Decision, 33(2): 93-110.

  • Manjunatha.T, Mallikarjunappa. T and Begum Mustiary(2007). Capital Asset Pricing Model: Beta and Size Tests. AIMS International Journal of Management,1(1): 71-87.

  • Manjunatha.T and Mallikarjunappa. T(2009). Bivariate Analysis of Capital Asset Pricing Model in Indian Capital Market. Vikalpa, 34(1), 47-59.

  • Mossin, Jan (1968). Optimal Multi-Period Portfolio Policies. Journal of Business, 4(2), 215-229.

  • Pastor, L’ubos, (2002), “A Model Weighting Game in Estimating Expected Returns,” Business Standard, September 6, 5-6.

  • Rao, Narayan S. (2004). Risk Factors in the Indian Capital Markets. The ICFAI Journal of Applied Finance, 10(11), 5-15.

  • Reinganum, Marc R. (1981). The Arbitrage Pricing Theory: Some Empirical Results. Journal of Finance. 36(2), 313-321.

  • Sehgal, Sanjay (1997). An Empirical Testing of Three Parameter Capital Asset Pricing Model in India. Finance India, 11(4): 424-442.

  • Sharpe, William F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. Journal of Finance, 19(3), 425-442.

  • Srinivasan S(1988). Testing of Capital Asset Pricing Model in Indian Environment. Decision, 15:51-59.

  • Terregrossa, S. J(2001). Robust Informational Tests on the CAPM. Applied Economics, 8(2): 121-124.

  • Vaidyanathan, R. (1995). Capital Asset Pricing Model: The Indian Context. The ICFAI Journal of Applied Finance, 1(2), 221-224.

  • Varma, Jayanth R(1988). Asset Pricing Model under Parameter Non-Stationarity, Doctoral Dissertation, Indian Institute of Management, Ahmedabad.

  • Yalwar Y.B (1988). Bombay Stock Exchange: Rates of Return and Efficiency. Indian Economics Journal, 35:68-121.

  • http://bseindia.com/about/abindices/bse30.asp#reconstitution. Last accessed on 30th June , 2010.

  • http://bseindia.com/mktlive/indiceshighlights.asp. Last accessed on 30th June, 2010.

  • https://cdbmsi.reservebank.org.in/cdbmsi/servlet/login/statistics. Last accessed on 30th June, 2010.


Abstract Views: 420

PDF Views: 0




  • Testing of Beta and Return in the Indian Capital Market

Abstract Views: 420  |  PDF Views: 0

Authors

T Manjunatha
Principal, Bapuji Academy of Management & Research, Davangere, Karnataka

Abstract


The study tests whether beta as envisaged in CAPM is the determinants of the security and portfolio returns. Further the study also tests whether the intercept of the CAPM is equal to the risk-free rate of return as envisaged in the standard form of theory. The study is based on BSE Sensex companies. The overall results, based on percentage and log returns show that the intercept is equal to the risk-free rate of return but the beta does not explain the variation in individual security returns and portfolio returns in Indian capital market. Therefore, we conclude that CAPM does not hold for the Indian market.

Keywords


CAPM, Intercept, Security/Portfolio returns, Beta, Risk-free Returns, Market Returns

References