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Indian stock market and the asset pricing models

Author

Listed:
  • . Harshita

    (Indian Institute of Technology Delhi)

  • Shveta Singh

    (Indian Institute of Technology Delhi)

  • Surendra S. Yadav

    (Indian Institute of Technology Delhi)

Abstract

Asset pricing models are attempts to define the relationship between returns and risks. In this study, we test and compare the performance of three asset pricing models ? the Capital Asset Pricing Model, the three factor model of Fama and French (1993), and the five factor model of Fama and French (2015) ? on Indian stock market (an emerging economy). The study is based on the constituent companies of CNX 500, and covers a period of fifteen years ? from October 1999 to September 2014. The models are tested on portfolios formed on four firm characteristics ? market capitalization, ratio of book-to-market equity, profitability, and investment. We find that the three factor model performs better than the Capital Asset Pricing Model in all the cases. For portfolios formed on investment, the five factor model performs better than the other models. However, except for cases in which portfolios are formed on investment, the four factor model (without an investment factor) is a more parsimonious model.

Suggested Citation

  • . Harshita & Shveta Singh & Surendra S. Yadav, 2015. "Indian stock market and the asset pricing models," Proceedings of Economics and Finance Conferences 2204802, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:2204802
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    Citations

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    Cited by:

    1. Ailie Charteris & Mukashema Rwishema & Tafadzwa-Hidah Chidede, 2018. "Asset Pricing and Momentum: A South African Perspective," Journal of African Business, Taylor & Francis Journals, vol. 19(1), pages 62-85, January.
    2. Pankaj Sinha & Priya Sawaliya, 2021. "Financial Constraints, Stock Returns and R&D in Indian Stock Market," Vision, , vol. 25(2), pages 192-200, June.
    3. Sawaliya, Priya & Sinha, Pankaj, 2018. "Behaviour of asset pricing models in pre and post-recession period: an evidence from India," MPRA Paper 93084, University Library of Munich, Germany, revised 22 Jan 2019.
    4. Li, Zhuolei & Diao, Xundi & Wu, Chongfeng, 2022. "The influence of mobile trading on return dispersion and herding behavior," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    5. Hardeep Singh Mundi, 2023. "Risk neutral variances to compute expected returns using data from S&P BSE 100 firms—a replication study," Management Review Quarterly, Springer, vol. 73(1), pages 215-230, February.
    6. Jareño, Francisco & González, María de la O & Escolástico, Alba M., 2020. "Extension of the Fama and French model: A study of the largest European financial institutions," International Economics, Elsevier, vol. 164(C), pages 115-139.

    More about this item

    Keywords

    Asset pricing model; market capitalization; book-to-market equity; profitability; investment; India;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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