A Study On Capital Asset Pricing Model With Reference To Bse-500 Index At Edelweiss Stock Broking Pvt. Ltd

Abstract

This study investigates the applicability of the Capital Asset Pricing Model (CAPM) to the Indian stock market by analysing selected stocks from various industries using regression techniques to estimate Beta, Alpha, and residuals. The findings reveal significant variations in risk and returns across sectors, with Tata group stocks and certain banking and infrastructure companies outperforming others. Stocks such as Tata Power, Tata Motors, and BHEL generated returns exceeding their expected values, indicating underpriced securities, while pharmaceutical, IT, and FMCG sectors largely showed overpriced stocks. Beta values demonstrated varying market sensitivities, with Tata Motors exhibiting the highest market risk. The empirical tests suggest that CAPM’s assumptions are partially validated: betas of diversified portfolios are relatively stable, and the security market line (SML) shows a near-linear relationship between returns and beta, though slopes are less than predicted. The study concludes that while CAPM captures some risk-return dynamics, it fails to fully explain cross-sectional return variations in the Indian context, highlighting its limitations and the need for alternative or extended asset pricing models