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Single Index Model o o Relates returns on each security to the returns on a common index, such as the CNX Nifty or Sensex Stock Index Expressed by the following equation :
Ri i i RM ei
o o Divides return into two components: a unique part, i a market-related part, i.Rm Beta measures sensitivity of stock to stock market movements.
CAPM Model The capital asset pricing model provides a formula that calculates the expected return on a security based on its level of risk. The formula for the capital asset pricing model is the risk free rate plus beta times the difference of the return on the market and the risk free rate.
Procedure : 1.) Weekly returns were taken for stocks and S&P BSE 500 for the last 1 year from BSE website. 2.) Ex ante Beta calculated for the 103-252 data rows using the returns on equity and market for 1-98 data rows. This was done using SLOPE function in excel. 3.) 364 day T-bils rate was used as the risk free rate. Rf was obtained by dividing this rate by 52 weeks. 4.) Ri-Rf was calculated for the 51-100 data rows. Regression analysis was done using Y values as Ri- Rf and X values as the Beta Following regression was used: Ri-Rf =i + i (Rm-Rf) + ei
Hypothesis Testing If CAPM holds in general, correlation of equity return with the market return (i) alone could provide sucient explanation to the risk premium, such that i should be zero. For this reason, a hypothesis testing is performed with null hypothesis =0 at 5% significance level. H0: = 0 H1: 0
Objective: In these observations, we are trying to analyze whether the CAPM model holds true for the stocks listed on the Bombay Stock Exchange or not.
Financial Technologies
Using Regression we get Coefficients -0.02204 0.008861 Standard Error 0.058198 0.03262 t Stat -0.37877 0.271647 P-value 0.705402 0.786272
Intercept X Variable 1
Regression Statistics Multiple R 0.022324 R Square 0.000498 Adjusted R Square -0.00626 Standard Error 0.08083 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.02 and the p-value is 0.705 Since p-value > 0.05 we reject the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Financial Technologies
HCL Technologies
Using regression we get, Standard Coefficients Error 0.006425 0.003523 -0.00759 0.00563 t Stat P-value 1.82361 0.070229 1.34751 0.179877
Intercept X Variable 1
Regression Statistics Multiple R 0.110091 R Square 0.01212 Adjusted R Square 0.005445 Standard Error 0.019772 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.006 and the p-value is 0.07 Since p-value > 0.05 we do not accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of HCL Technologies
Hexaware Technologies
Using regression we get, Standard Coefficients Error t Stat P-value 0.004827 0.004563 1.057901 0.291824 -0.00261 0.005027 -0.51827 0.605047
Intercept X Variable 1
Regression Statistics Multiple R 0.042563 R Square 0.001812 Adjusted R Square -0.00493 Standard Error 0.021254 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.004 and the p-value is 0.29 Since p-value > 0.05 we do not accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei InHence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Hexaware Technologies
Infosys
Using regression we get, Standard Coefficients Error t Stat P-value 0.000545 0.00649 0.083957 0.933204 0.001142 0.013606 0.083922 0.933232
Intercept X Variable 1
Regression Statistics Multiple R 0.006898 R Square 4.76E-05 Adjusted R Square -0.00671 Standard Error 0.024303 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.005 and the p-value is 0.93 Since p-value > 0.05 we do not accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Infosys
Mindtree
Using regression we get, Standard Coefficients Error t Stat P-value 0.010443 0.007102 1.470495 0.14355 -0.02327 0.022019 -1.05685 0.292301
Intercept X Variable 1
Regression Statistics Multiple R 0.086547 R Square 0.00749 Adjusted R Square 0.000784 Standard Error 0.018704 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.01 and the p-value is 0.14 Since p-value > 0.05 we do not accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Mindtree
Mphasis
Using regression we get, Standard Coefficients Error t Stat P-value 0.002744 0.007419 0.369821 0.712044 -0.00287 0.011899 -0.24106 0.809845
Intercept X Variable 1
Regression Statistics Multiple R 0.019811 R Square 0.000392 Adjusted R Square -0.00636 Standard Error 0.022582 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.002 and the p-value is 0.71 Since p-value > 0.05 we do not accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Mphasis
Oracle Financial
Using regression we get, Standard Coefficients Error t Stat P-value 0.004644 0.00271 1.713715 0.088675 -0.00903 0.005707 -1.58308 0.115537
Intercept X Variable 1
Regression Statistics Multiple R 0.129041 R Square 0.016652 Adjusted R Square 0.010007 Standard Error 0.016516 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.004 and the p-value is 0.08 Since p-value > 0.05 we do not accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Oracle Financial
TCS
Using regression we get, Coefficients Intercept X Variable 1 Standard Error t Stat P-value
Regression Statistics Multiple R 0.195927 R Square 0.038388 Adjusted R Square 0.03189 Standard Error 0.016943 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.007 and the p-value is 0.06 Since p-value > 0.05 we do not accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of TCS
Tech Mahindra
Using regression we get, Standard Coefficients Error 0.010979 0.005309 -0.02201 0.012742 t Stat P-value 2.06784 0.040396 1.72696 0.086261
Intercept X Variable 1
Regression Statistics Multiple R 0.140546 R Square 0.019753 Adjusted R Square 0.01313 Standard Error 0.01939 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.01 and the p-value is 0.04 Since p-value <0.05 we accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model holds true in Indian Equity Market taking the example of Tech Mahindra
Wipro Technologies
Using regression we get, Standard Coefficients Error t Stat P-value 0.008529 0.003757 2.269852 0.024661 -0.01845 0.007963 -2.31651 0.021903
Intercept X Variable 1
Regression Statistics Multiple R 0.187055 R Square 0.03499 Adjusted R Square 0.028469 Standard Error 0.020979 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.008 and the p-value is 0.02 Since p-value < 0.05 we accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model holds true in Indian Equity Market taking the example of Wipro Ltd.
CAIRN
Using Regression we get Coefficient s Intercept X Variable 1 -0.00373 Standard Error 0.00888 3 0.01255 7 t Stat -0.41975 0.47967 9 P-value 0.67527 5 0.63216 4 Lower 95% 0.02128 0.01879 Upper 95% 0.01382 5 0.03083 8 Lower 95.0% 0.02128 0.01879 Upper 95.0% 0.01382 5 0.03083 8
0.006023
Regression Statistics Multiple R 0.039399 R Square 0.001552 Adjusted R Square -0.00519 Standard Error 0.017245 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.00373 and the p-value (intercept) and p-value(x-variable) is 0.67527 and 0.632164 Since p-value (x-variable)> 0.05 we reject the null hypothesis that = 0 and =0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Cairn
GAIL
Using Regression we get Coefficient s Intercept X Variable 1 0.024692 Standard Error 0.01574 1 0.01863 6 t Stat 1.56861 3 P-value 0.11887 4 0.12037 5 Lower 95% 0.00641 0.06594 Upper 95% 0.05579 8 0.00771 4 Lower 95.0% 0.00641 0.06594 Upper 95.0% 0.05579 8 0.00771 4
-0.02911
-1.56221
Regression Statistics Multiple R 0.127367 R Square 0.016222 Adjusted R Square 0.009575 Standard Error 0.01795 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.024692 and the p-value (intercept) and p-value(x-variable) is 0.118874 and 0.120375 Since p-value (x-variable)> 0.05 we reject the null hypothesis that = 0 and =0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of GAIL
IOC
Using Regression we get Coefficients Intercept X Variable 1 Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
-0.00259 0.016025
-0.0002 0.013592
Regression Statistics Multiple R 0.001237 R Square 1.53E-06 Adjusted R Square -0.00676 Standard Error 0.021958 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.00259 and the p-value (intercept) and p-value(x-variable) is 0.871729 and 0.988015 Since p-value (x-variable)> 0.05 we reject the null hypothesis that = 0 and =0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not holds true in Indian Equity Market taking the example of IOC
ONGC
Using Regression we get Coefficients Intercept X Variable 1 Standard Error t Stat 0.22455 0.93678 P-value 0.82264 Lower 95% Upper 95% Lower 95.0% Upper 95.0%
-0.00037 0.001651
-0.00603 0.006432
0.3504
Regression Statistics Multiple R 0.076775 R Square 0.005894 Adjusted R Square -0.00082 Standard Error 0.017041 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.00037 and the p-value (intercept) and p-value(x-variable) is 0.82264 and 0.3504 Since p-value (x-variable)> 0.05 we reject the null hypothesis that = 0 and =0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not holds true in Indian Equity Market taking the example of ONGC
DLF
Using Regression we get Coefficients Intercept X Variable 1 Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% 0.14738 0.04325 Upper 95.0% 0.082668 0.07233
-0.03236 0.058207
-0.55589 0.579124
Regression Statistics Multiple R 0.040831 R Square 0.001667 Adjusted R Square -0.00508 Standard Error 0.036237 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.03236and the p-(intercept) is 0.579124 and p value (X variable) is 0.619825 Since p-value (X variable) > 0.05 we reject the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true for DLF
HDIL
Coefficients Intercept X Variable 1 Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% 0.01424 0.02838 Upper 95.0% 0.086043 0.003726
Regression Statistics Multiple R 0.123783 R Square 0.015322 Adjusted R Square 0.008669 Standard Error 0.044403 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.0359 and the p-(intercept) is 0.159228 and p value (X variable) is 0.131258 Since p value (X variable) > 0.05 we reject the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true for HDIL
Peninsula Land
Coefficients Intercept X Variable 1 Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% 0.03053 0.01491 Upper 95.0% 0.030874 0.01236
Regression Statistics Multiple R 0.015192 R Square 0.000231 Adjusted R Square -0.00652 Standard Error 0.035975 Observations 150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.00017 and the p-(intercept) is 0.991296 and p value (X variable) is 0.853604 Since p value (X variable) > 0.05 we reject the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei ] Hence we can conclude that the CAPM model does not hold true for Peninsula Land
Sobha Developers
Coefficients Intercept X Variable 1 -0.00197 Standard Error 0.00681 t Stat P-value Lower 95% Upper 95% Lower 95.0% 0.01543 0.01059 Upper 95.0% 0.011487 0.011337
-0.28936 0.772708
Regression Statistics Multiple R 0.005521 R Square 3.05E-05 Adjusted R Square -0.00673 Standard Error 0.027306 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.00197 and the p-(intercept) is 0.772708 and p value (X variable) is 0.946539 Since p value (X variable) > 0.05 we reject the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true for Sobha Developer
Intercept X Variable 1
Regression Statistics Multiple R R Square Adjusted R Square Standard Error 0.017772 0.000316 -0.00644 0.017143
Observations
150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.0008 and the p-value is 0.87 Since x variable p-value > 0.05 we cannot accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market taking the example of Colgate Palmolive
GSK
Using Regression we get Coefficients 0.003521 -0.00488 Standard Error 0.005542 0.00903 t Stat 0.635368 -0.54092 P-value 0.52617 0.589373
Intercept X Variable 1
Regression Statistics Multiple R R Square Adjusted R Square Standard Error 0.04442 0.001973 -0.00477 0.032683
Observations
150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is0.0035 and the p-value is 0.52 Since x variable p-value > 0.05 we cannot accept the null hypothesis that = 0 Hence we understand that the value of alpha is not statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market
HUL
Using Regression we get Coefficients 0.001571 0.000799 Standard Error 0.00826 0.014219 t Stat 0.190156 0.056226 P-value 0.849448 0.955238
Intercept X Variable 1
Regression Statistics Multiple R R Square Adjusted R Square Standard Error 0.004622 2.14E-05 -0.00674 0.023103
Observations
150
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.0015 and the p-value is 0.84 Since x variable p-value > 0.05 we cannot accept the null hypothesis that = 0 Hence we understand that the value of alpha is not statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market
Jubilant Foodworks
Using Regression we get Coefficients 0.00522548 -0.00836651 Standard Error 0.00373548 0.00474343 t Stat 1.398876 -1.76381 P-value 0.163942 0.079828
Intercept X Variable 1
Regression Statistics Multiple R R Square Adjusted R Square Standard Error 0.143483993 0.020587656 0.013970005 0.01926696
Observations
150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.0055 and the p-value is 0.16 Since x variable p-value > 0.05 we cannot accept the null hypothesis that = 0 Hence we understand that the value of alpha is not statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market
Intercept X Variable 1
Regression Statistics Multiple R R Square Adjusted R Square Standard Error 0.001511 2.28E-06 -0.00675 0.020339
Observations
150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.000978 and the p-value is 0.88 Since x variable p-value > 0.05 we cannot accept the null hypothesis that = 0 Hence we understand that the value of alpha is not statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market
United Spirits
Using Regression we get Coefficients -0.00144 0.004354 Standard Error 0.009575 0.010899 t Stat -0.15063 0.39945 P-value 0.88047428 0.69013778
Intercept X Variable 1
Regression Statistics Multiple R R Square Adjusted R Square Standard Error 0.032817 0.001077 -0.00567 0.027376
Observations
150
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.0014 and the p-value is 0.88
Since x variable p-value > 0.05 we cannot accept the null hypothesis that = 0 Hence we understand that the value of alpha is not statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true in Indian Equity Market
Bajaj Auto
Using Regression we get Coefficients 0.001625 0.023401 Standard Error 0.001583 0.011797 t Stat 1.026628 1.983659 P-value 0.306271 0.049144 Lower 95% -0.0015 8.89E05 Upper 95% 0.004754 0.046714 Lower 95.0% -0.0015 8.89E05 Upper 95.0% 0.004754 0.046714
Intercept X Variable 1
Regression Statistics Multiple R 0.16093 R Square 0.025899 Adjusted R Square 0.019317 Standard Error 0.015358 Observations 150
-0.1 X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is 0.001 and the p-(intercept) is is 0.306 and p value (X variable) is 0.049 Since all conditions are met and p value (X variable) is 0.049< 0.05 we accept the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model holds true for Bajaj Auto
Exide
Coefficients Intercept X Variable 1 -0.00717 0.009402 Standard Error 0.017078 0.022921 t Stat -0.41994 0.410194 P-value 0.675135 0.682257 Lower 95% 0.04092 0.03589 Upper 95% 0.026577 0.054698 Lower 95.0% 0.04092 0.03589 Upper 95.0% 0.026577 0.054698
Regression Statistics Multiple R 0.033699 R Square 0.001136 Adjusted R Square -0.00561 Standard Error 0.019316 Observations 150
X Variable 1
Observation and Inferences: From the regression analysis, we can see the value of intercept is -0.007 and the p-(intercept) is is 0.675 and p value (X variable) is 0.682 Since p value (X variable) > 0.05 we reject the null hypothesis that = 0 Hence we understand that the value of alpha is statistically zero in the regression Ri-Rf =i + i (Rm-Rf) + ei Hence we can conclude that the CAPM model does not hold true for Exide
Conclusion: As per our analysis, the CAPM model does not hold true for most of the stocks on Bombay Stock Exchange