Paradigms
A Research Journal of Commerce, Economics, and Social Sciences
Online ISSN: 2410-0854
Print ISSN: 1996-2800
 
     
 

Paradigms Journal

Test Of Capital Asset Pricing Model On Stocks At Karachi Stock Exchange
Author(s) :
Arbab Khalid Cheema (Faculty of Commerce, University of Central Punjab, Lahore, Pakistan)
Abstract
This paper attempts to empirically test the single-factor CAPM developed by Sharpe (1964), Lintner (1965) and Jan Mossin (1966) and others, which proposes that the expected returns of capital assets are dependent on their risk relative to the entire market which is quantified by a correlation co-efficient between asset returns and market returns. The test of 20 stocks at Karachi Stock Exchange have shown that though, the beta co-efficients are significant, their strength is considerably weak. Therefore, other factors which are unaccounted for in this model are important in determining risk and return. In addition, betas are less relevant in a volatile emerging capital markets like the KSE. Thus, the multi-factor models are better than the classical CAPM at determining the risk-return relationship. However, the single-factor CAPM remains in practice beacause of its simplicity.
Keywords: CAPM; Expected Returns; Karachi Stock Exchange
 
 

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