Published Paper Details:

The Capital Asset Pricing Model (CAPM) is a model that is used by investors to calculate the expected return on their portfolio. The model uses the risk-free rate of return, market risk premium and market beta in order to give the investors an idea about the return that the investor can get if he/she invests in a particular security or portfolio. This research aims to check the validity of the CAPM model in calculating expected return by comparing the calculated return with the actual return. In order to do this, the author has used 5 years of data from 1st April 2013 to 31st March 2018. The author has assumed the portfolio to comprise of all the companies of the Bank Nifty Index. The market beta has been calculated using the Nifty 50 index as the market and the Bank Nifty as the portfolio. Using the CAPM formula, the author calculates the expected return for the above-mentioned period and compares it with the actual return. The author finds a deviation of 1.7539%, where the actual return is higher than the calculated return. In order to confirm this, the author used ANOVA test between the actual and calculated deviation, which also confirmed the deviation. The author also carried out tests to check the effect of GARCH Model on the calculated return as well as expected return. Neither of the variables was affected by the GARCH Model, confirming that there was not much volatility in either of the variables. However, a basic standard deviation test carried out on both variables showed that the volatility in the calculated returns was higher than that of the actual returns.