The Analysis of the Validity of Capital Asset Pricing Model: Evidence from Pakistan Stock Exchange

Adeel Akhtar, Muhammad Shaukat Malik, Imran Nusrat and Allah Bakhsh

Journal of Accounting and Finance in Emerging Economies, 2016, vol. 2, issue 2, 57-68

Abstract: The aim of this study was to find evidence for the implementation of&capital asset pricing model (CAPM) on companies listed at Pakistan StockExchange before, during and after financial crisis. The data of 50&companies were collected ranging from various sectors of Pakistan stockexchange. Data were divided into 3 different groups: year 2005-2007,&2008-2010 and 2011-2013. Regression analysis was conducted for testingthe hypotheses by taking Pakistan stock exchange 100 index as&independent variable and individual stocks return as dependent variable.Three different levels of significance have been used: significance at 1%,&significance at 5%, and significance at 10%. The results suggested that inPakistan different business organizations due to narrow scope of business&are relatively less diversified and have relatively high flexibility ofresponding unexpected and uncertain events, influencing overall market&performance. Similarly, large number of companies, specifically duringperiod of financial crisis, are affected and influenced by numerous risk&factors. It was concluded that fair prices of stock cannot be determinedwith the help of CAPM in Pakistan.

Keywords: CAPM; Financial Crisis; Individual Stock Returns; PSE 100 Index (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:src:jafeec:v:2:y:2016:i:2:p:57-68

DOI: 10.26710/jafee.v2i2.102

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