Application of the CAPM on the DS30 Index: A time series and cross-sectional approach to examine the risk and return paradigm for blue-chip stocks listed within the Dhaka Stock Exchange

Authors

  • Sayeed Ibrahim Ahmed AIUB

Keywords:

DS30, Dhaka Stock Exchange, Capital Asset Pricing Model, DSE, CAPM

Abstract

In the following study, an examination of the risk-return paradigm is visited upon once again in association with the Capital Asset Pricing Model (CAPM) structure and the Dhaka Stock Exchange (DSE). Sharpe (1964) and Lintner (1965) introduced the concept to single out the relationship between a company’s expected return in association to its systematic risk. The purpose was to examine if the CAPM when applied to the DSE context could be used to predict the expected returns given their systematic risk factored in. 42 such companies excluding the financial stocks that appeared within the DS30 blue-chip index over the period 2016 until 31st December 2019 were used as our primary data points. Prior to examining the risk-return tradeoff for the sample of individual stocks under consideration, we converted the daily price data into monthly formats and all the other factors were converted into monthly terms using the same technique. we applied Omran’s (2007) two stage regression model on to the basic version of the CAPM.

 

Going in line with textbook definitions, “empirical analysis utilizing the CAPM for individual companies/ stocks, the intercept term was observed to be significantly different from zero and the slope was not equal to the excess return obtained from the market portfolio”. The results of the study nullify our hypothesis and provide evidence against the use of the CAPM yielding conclusive evidence that the CAPM is not suitable to analyze risk-return probabilities for individual companies within the DSE.


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Published

2023-12-31

How to Cite

Ahmed, S. I. (2023). Application of the CAPM on the DS30 Index: A time series and cross-sectional approach to examine the risk and return paradigm for blue-chip stocks listed within the Dhaka Stock Exchange. AIUB Journal of Business and Economics, 20(2), 18–27. Retrieved from http://116.206.57.42/index.php/ajbe/article/view/ajbe202-1