Abstract:
Capital asset pricing model is one of the most widely used models. It describes the relation between the market risk and the return. Consumption capital asset pricing model is forward looking hedge portfolio by taking consumption risk into the account. Consumption capital asset pricing model is closely related to the systematic risk and risk aversion in the portfolio. 100 actively traded companies in Karachi Stock Exchange, of different industries were selected for the study purpose. 10 portfolios were made with each portfolio containing 10 companies. Monthly returns for 118 months for each portfolio were calculated. Estimation tests were conducted on the data for the testing of conventional CAPM (manufacturing index) and consumption CAPM (with manufacturing index).
