Book

Description

The Capital Asset Pricing Model (CAPM) is one of the most influential models in modern financial economics and investment analysis. It provides a framework for understanding the relationship between risk and expected return and has played an important role in the development of theories concerning investment decisions, portfolio management, and asset pricing. This book presents an empirical analysis of the Capital Asset Pricing Model, with a particular focus on its relevance and applicability in the Indian stock market. The book examines one of the fundamental questions faced by investors and researchers: how does the level of risk associated with an investment relate to the return that investors expect to receive? CAPM provides a theoretical relationship between expected return and systematic risk, represented primarily through the beta of a security. By examining this relationship using actual market data, the study seeks to provide an empirical perspective on the extent to which the theoretical assumptions of CAPM are reflected in real-world financial markets. The analysis focuses on the Indian stock market and uses market observations to examine the relationship between individual securities and broader market movements. The study considers important concepts such as risk, return, systematic risk, beta, and expected return, providing readers with a structured understanding of the theoretical foundations behind CAPM as well as its practical application. Through empirical analysis, the book evaluates whether differences in systematic risk can help explain differences in the returns associated with selected securities. A key feature of this work is its connection between financial theory and observable market data. While financial models provide simplified frameworks for understanding complex market behaviour, their usefulness ultimately depends on how well they perform when applied to actual financial markets. The empirical examination presented in this book therefore provides an opportunity to understand both the strengths and limitations of CAPM when considered in the context of the Indian market.