Capital asset pricing model and subprime crisis: evidence from Indian equity market

Shweta Bajpai and Anil K. Sharma

International Journal of Indian Culture and Business Management, 2017, vol. 14, issue 1, 65-93

Abstract: The sub-prime crisis of 2008 caused great instability across all the stock markets of the world. Hence, a departure in the equilibrium level of stock prices is expected. This study is an attempt to examine capital asset pricing model (CAPM) empirically in the light of crisis of 2008, in the Indian securities market. The study involves a period sub-prime crisis hence, an attempt has been made to examine the CAPM considering the recessionary period. Additionally, in order to establish robustness of the model, the CAPM has been tested on a rolling sample daily data of one year with a monthly updating scheme. This study suggests that the CAPM is not able to explain the return generating process of stocks in an efficient manner. However, the model without the intercept term cannot be ignored grossly, as it marks its significance around 16% of times.

Keywords: cross-sectional regression; capital asset pricing model; CAPM; rolling regression; subprime crisis; India; equity markets; securities markets; stock returns. (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijicbm:v:14:y:2017:i:1:p:65-93

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