Testing of CAPM in An Emerging Economy: A Case Study of Pakistan

Amir Hussain (), Zia Obaid and Sajid Afridi
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Amir Hussain: Institute of Management Studies, UoP, Peshawar
Zia Obaid: Florida State University, USA
Sajid Afridi: State Bank of Pakistan

Business & Economic Review, 2011, vol. 3, issue 2, 143-153

Abstract: The theme of this paper is to test the validity of the Capital Asset Pricing Model of Sharpe [1964] and Lintner [1965] version which is considered as a standard Asset Pricing Model and generally performs poorly in both developed and emerging markets. For this purpose, 45 companies have been selected randomly which are listed at Karachi Stock Exchange. Their daily share price data for a period of five years have been analyzed in order to test the validity of CAPM in an emerging economy taking a case of KSE-100 index. The research finding concludes that CAPM version of Sharpe [1964] and Lintner [1965] is still one of a useful method for estimating the cost of equity capital in an emerging market as from the selected sample of forty five companies, the values of beta for thirty seven companies are found significant which proved that beta is still a useful measure of risk in an emerging market like Pakistan

Keywords: Capital asset pricing model; emerging markets; risk; KSE-100 index (search for similar items in EconPapers)
JEL-codes: G10 G21 G32 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bec:imsber:v:3:y:2011:i:2:p:143-153

DOI: 10.22547/BER/3.2.2

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