Title: Capital asset pricing model and subprime crisis: evidence from Indian equity market

Authors: Shweta Bajpai; Anil K. Sharma

Addresses: Department of Management Studies, Indian Institute of Technology, Roorkee-247667, Uttarakhand, India ' Department of Management Studies, Indian Institute of Technology, Roorkee-247667, Uttarakhand, India

Abstract: The sub-prime crisis of 2008 caused great instability across all the stock markets of the world. Hence, a departure in the equilibrium level of stock prices is expected. This study is an attempt to examine capital asset pricing model (CAPM) empirically in the light of crisis of 2008, in the Indian securities market. The study involves a period sub-prime crisis hence, an attempt has been made to examine the CAPM considering the recessionary period. Additionally, in order to establish robustness of the model, the CAPM has been tested on a rolling sample daily data of one year with a monthly updating scheme. This study suggests that the CAPM is not able to explain the return generating process of stocks in an efficient manner. However, the model without the intercept term cannot be ignored grossly, as it marks its significance around 16% of times.

Keywords: cross-sectional regression; capital asset pricing model; CAPM; rolling regression; subprime crisis; India; equity markets; securities markets; stock returns.

DOI: 10.1504/IJICBM.2017.080760

International Journal of Indian Culture and Business Management, 2017 Vol.14 No.1, pp.65 - 93

Received: 13 Sep 2015
Accepted: 26 Dec 2015

Published online: 13 Nov 2016 *

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