Validity of Capital Asset Pricing Model & Stability of Systematic Risk (Beta) : An Empirical Study on Indian Stock Market

The capital asset pricing model (CAPM) is the standard risk-return model used by most academicians and practitioners. The underlying concept of CAPM is that investors are rewarded for only that portion of risk which is not diversifiable. This non-diversifiable risk is termed as beta, to which expected returns are linked. The objective of the study is to test the validity of this theory in Indian capital market & the stability of this non diversifiable risk (i.e. systematic risk or beta). The study has used the data of 10 stocks & 10 sectoral indices listed on the BSE, for a period of 4 years (January 2005 to December 2008) for the analysis. The studies provide evidence against the CAPM hypothesis. And finally, the studies also provide the evidence against the stability of systematic risk