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.
ARBAB KHALID CHEEMA. (2010) TEST OF CAPITAL ASSET PRICING MODEL ON STOCKS AT KARACHI STOCK EXCHANGE, Paradigms , Vol 4, Issue 1 .
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