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Capital Asset Pricing Model: A Case Study

1398 Words6 Pages

What is CAPM
According to Rabeea Sadaf and Sumera Andleeb (2014), the capital asset pricing model (CAPM) is a tool can be apply to define a theoretically appropriate required Rate of Return of an asset. The CAPM was developed by Jack Treynor (1961, 1962), William Sharpe (1964), John Lintner (1965a, b), according to them the systematic risk need to consider when investor calculating a deserved return as it is uncontrollable and unavoidable even they diversified away; for the unsystematic risk of that asset can be assumed zero because stock's return that is not correlated with general market moves. The CAPM concept states that the return on an individual stock, or a portfolio of stocks have to equal its cost of capital which then is a linear …show more content…

The research shows that CAPM is not the valid tool to estimate the return in Pakistani capital market. the main objective of this study is to determine how accurately the capital asset pricing model predicts the expected return from Karachi Stock Exchange (KSE) is not a stable market and investors find fluctuations in prices of stocks, for this reason, Karachi stock exchange have very different relationship between risk and return.)
Jianhua Dai*, Jian Hu and Songmin Lan (2014) The main purpose of the paper is to conduct a study of CAPM in China’s Stock markets. Stocks data and combined data of Shanghai Stock Exchange were selected as research subjects in this paper. Empirical analysis of these data has been carried out by way of t-statistics and joint test to verify whether CAPM model would be true of China’s stock market. Conclusion was reached that CAPM model is essential in China's stock market. Thus, CAPM model can be applied in empirical analysis and theoretical study on the market as to promote the development of China's stock market.

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