The Cross-Section of Expected Stock Returns in Nepal

The CAPM asserts that market betas are sufficient to explain the cross section of expected stock returns. However, beta showed either no relationship or a weak relationship with the expected stock returns when other company specific variables affecting stock returns are used. This study aims at examining the ability of beta and other company specific factors such as firm size, book to market ratio, sales to price ratio, dividend yield and earning price ratio to explain cross section of stock returns in Nepal. The study reveals that the beta has a very weak relation with stock returns in Nepal. The coefficient of beta is not significant and hence there is no evidence that beta explains variation of stock returns. The study showed that size, dividend yield, and book to market ratio has been found to be significant factors affecting stock returns in Nepal while beta, earning price ratio, and sales to price ratio do not explain the variation in stock returns