An Empirical Test of Capital Assets Pricing Model and Three Factor Model of Fama in Indian Stock Exchange

The Research paper has focused on the recent growth of capital markets in India and the need of practitioners in these markets to determine a stable price for securities and achieving expected return have brought theories of predicting securities price more into consideration. Among different models the CAPM of Sharp (1964), Lintner (1965) and Fama-French's three-factor model (1993) are more considered by researchers and practitioners. The purpose of this Research Paper is the empirical testing of Capital Asset Pricing Model (CAPM) and three factor model of Fama for the Indian capital market with reference to the NSE&NSE, both for individual assets and for portfolios,

The study using a sample of daily data and Annual Average for 54 companies listed on National Stock Exchange, during the period from 2010 to 2016, following the interpretation of results and usefulness of the model estimates. The research paper intention is to find if the relationship between expected return and risk is linear, if beta is a complete measure of the risk and if a higher risk is compensated by a higher expected return.

The results confirm that the intercept is statistically insignificant, upholding theory, for both individual assets and portfolios. The tests do not essentially provide validation against CAPM and FAMA, however other simulations can be built, more close to reality,

The results confirm that the intercept is statistically insignificant, upholding theory, for both individual assets and portfolios. The tests do not essentially provide validation against CAPM and FAMA, however other simulations can be built, more close to reality, improving the model and offering an alternative which also takes into account the specific conditions of Indian capital market and the global financial crisis consequences.