Relative and numerical investigation of sharpe and lintner CAPM and downside risk based CAPM in the developing stock market of Pakistan i.e. KSE

Abstract

The current research is done to check or examine the CAPM and the DCAPM in the raising stock market of the Pakistan i.e. KSE. This research also tried to show the relationship between the risk and the returns of the individual or the separate stocks. This study also tried to show the performance of both the model and the comparison between both the models in the KSE for the risk and the return calculation. In this research, the sample size consists of the 60 companies listed or registered on the KSE with the time period starting from January 2005 to December 2010. The monthly data taken from the official website of KSE. State bank announces the treasury rate which is taken as the risk free rate. The methodology used in this study id the Fama & MacBeth methodology which is the three steps methodology for the numerical investigation of the models. After that t-test are applied to examine the data statistically. But the results show that both the models are not suitable for the emerging economy of the Pakistan and both the model failed in the raising stock market of Pakistan i.e. KSE.