Capital Asset Pricing Model (CAPM) and Indian Stock Market: A Study of Relationship between Systematic Risk and Expected Returns

Abstract

This paper looks at the suitability of CAPM in Indian stock market by evaluating relationship between systematic risk and anticipated returns of the chosen stocks that are listed on Bombay Stock Exchange (BSE). Study uses a sample of leading 30 companies in the index of BSE Sensex among 2019-2025 to analyze the association between beta, expected returns, and market risk premium. There is, however, also evidence that there are anomalies, including the effects of size and value that undermine the assumptions of the model. The findings are relevant to the risk-return relationship in the emerging markets, such as India, and give investors, portfolio managers and policy makers’ information to evaluate equity investments. The study concludes that CAPM holds moderately well in explaining stock returns, with a significant positive relationship between beta and expected return.