An Empirical Investigation of the CAPM and th...

An Empirical Investigation of the CAPM and the Fama – French Three Factor Model in Indian Stock Market

Author Name : Zankhana Atodaria, Drashti Shah, Jinal Nandaniya

ABSTRACT

The study attempted to provide a comprehensive analysis of two asset pricing models in Indian Equity Market i.e. Capital Asset Pricing Model and Fama-French Three Factor Model. For this empirical investigation, the data of NIFTY 50 companies for time period of 5 years i.e. April, 2014 to March, 2019 was taken. The asset pricing models were examined by forming portfolios based on market capitalization and ratio of book to market equity. It was found that the Fama-French Three Factor Model performed better than the Capital Asset Pricing Model. Investors who had applied any of these models for the investment purpose in the sample 5 years, had gained more than the risk free rate as well as returns earned through fixed deposits, post offices deposits, etc. The equity returns are affected by beta, value and size & investor can use these parameters for framing their portfolios. Double sorted as well single sorted portfolio provides positive monthly returns for all formed portfolios. The high beta portfolios provided higher returns compared to low beta portfolios & big stocks provided more return than small stocks during sampled five years. It is also found that low value stocks provide more return, than neutral and high value companies.

Keywords: Capital Asset Pricing Model, Fama-French Three Factor Model, market capitalization, ratio of book to market equity