Validating The Capital Asset Pricing Model (CAPM) In Context Of BSE Stocks Using Sectorial Indexes Vs Sensex As Benchmarks

Abstract

Capital Asset Pricing Model by Sharpe (1964) and Lintner (1965) is a globally utilized model for calculation
of expected rate of risk adjusted returns by scholars. The present work present the various perspectives with respect
to the validity of this model in deriving the desired results and tests an alternative approach towards calculation of
returns using different proxy measures. The results have shown that sectorial indexes can serve as a better measure
of proxy for the market portfolio in normal market conditions. The study covers the comparison of Alpha calculated
using the CAPM equations derived from Sensex and Sectorial indexes respectively as benchmark portfolios. The
study provides an important contribution guiding scholars about the significance of selecting appropriate proxy
measures while using CAPM.