Validity of Capital Asset Pricing Model (Substantiation from KARACHI STOCK MARKET)

摘要

Capital-Asset-Pricing-Model comprehensively tested, Either accepted or rejected of asset pricing models, This model came into exist in the era of late 1960 by its author having name William Sharp From that era (1960) this model is remained the function of text books as well as business school of Pakistan. CAP-Model shows that the expected return of securities or of portfolio has to be equal to the rate on free risk securities plus the risk premium. If the return on investment did not full fill or beat the return on investment then the investor should not be occupied the investment. Using this example we can compute the return on investment. This research paper used in framework of Pakistani institutions, and the period for his research paper is used from 2011 to 2014. The main aim of this research paper is to estimate the authenticity and the validity of an opinion. And size of the sample selected 30 companies from KARACHI STOCK EXCHANGE and applied the CAP-M and it is known that CAP-Model does not hold on KSE as our H1 is rejected and Ho is accepted in the light of results. The methodology adopted in this field is to calculation of beta via covariance and variance approach for the prediction of the required return, security price consequently underlying. Security price and estimation of risk is widely required for those people who invest in portfolio form. Hence it comes to know after this research CAP-Model does not hold on KSE market as from 120 observation only 9 observations supported to CAP-Model in line of minor difference where as on the other hand huge difference exist among expect and actual return. So CAP-Model does not fully convey the exact results but in a few years it expresses the most accurate results when used on certain breeds. When it is applied on KARACHI STOCK EXCHNAGE (KSE) with thirty companies CAPM does not fully hold on KSE.