A validity test of capital asset pricing model for Dhaka Stock Exchange

Hasan M. Z., KAMIL A. A., Mustafa A., Baten M. A.

Journal of Applied Sciences, vol.11, no.20, pp.3490-3496, 2011 (Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 11 Issue: 20
  • Publication Date: 2011
  • Doi Number: 10.3923/jas.2011.3490.3496
  • Journal Name: Journal of Applied Sciences
  • Journal Indexes: Scopus
  • Page Numbers: pp.3490-3496
  • Keywords: Beta, Capital asset pricing model, Dhaka stock exchange, Portfolio returns, Unique risk
  • Istanbul Gelisim University Affiliated: No

Abstract

Capital Asset Pricing Model (CAPM) was a revolution in financial theoiy. CAPM postulates an equilibrium linear association between expected return and risk of an asset. This study investigates a risk-retum relationship within the CAPM framework in Dhaka Stock Exchange (DSE) using monthly stock returns from 80 non-financial companies for the period of January 2005 to December 2009. From the CAPM empirical analysis, it is observed that intercept term is significantly different from zero and insignificant but there exists a positive relationship between beta and share return. The results of the study refute the CAPM hypothesis and offer evidence against the CAPM in DSE market. However, there exists linearity in the securities market line. The unique risk and the interaction are insignificant during the period. © 2011 Asian Network for Scientific Information.