- Saturday, Apr 4th, 2026
| TITLE | An Empirical Examination of the Capital Market Line: Firm-Level Evidence from the Indian Stock Market Using Risk-Return Analysis |
|---|---|
| ABSTRACT | This study investigates the applicability of the Capital Market Line (CML) at the firm level in the Indian stock market, providing empirical evidence on the risk-return relationship across listed companies. The CML, a fundamental concept in modern portfolio theory, posits a linear relationship between expected return and total risk (standard deviation) for efficient portfolios. While extensively tested at portfolio and market levels in developed economies, firm-level evidence remains scarce in emerging markets such as India. This research utilizes secondary data from 100 randomly selected publicly listed firms from the Bombay Stock Exchange (BSE) over a five-year period (2018–2022). Risk is measured through standard deviation of stock returns, and expected returns are proxied by historical mean returns. Statistical techniques, including regression analysis and correlation matrices, are employed to test the validity of the CML at the individual firm level. Findings indicate a significant positive association between firm-level risk and expected returns, affirming partial alignment with the CML, though deviations are observed in certain sectors due to market inefficiencies and firm-specific shocks. The study contributes to financial literature by extending CML analysis to emerging markets and provides implications for investors seeking optimal risk-adjusted strategies. |
| AUTHOR | Gaddam Humpy, Dr Ramesh Naik Vankadoth Student, Department of MBA, CMR Technical Campus, Hyderabad, India Associate Professor, Department of MBA, CMR Technical Campus (Autonomous), Hyderabad, India |
| VOLUME | 12 |
| DOI | DOI:10.15680/IJARETY.2025.1201046 |
| 46_An Empirical Examination of the Capital Market Line Firm-Level Evidence from the Indian Stock Market Using Risk-Return Analysis.pdf | |
| KEYWORDS | |
| References | 1. Agarwal, S., Singh, R., & Kumar, P. (2019). Risk-return dynamics in Indian equity markets: A firm-level perspective. Journal of Emerging Market Finance, 18(2), 123–145. 2. Bhattacharya, M., & Ghosh, D. (2020). Firm-specific shocks and risk-return relationship in Indian equities. Finance Research Letters, 34, 101218. 3. Fama, E. F., & French, K. R. (2004). The Capital Asset Pricing Model: Theory and evidence. Journal of Economic Perspectives, 18(3), 25–46. 4. Lintner, J. (1965). The valuation of risk assets and the selection of risky investments. Review of Economics and Statistics, 47(1), 13–37. 5. Mohanty, R., & Sahoo, S. (2017). Testing the Capital Market Line in emerging markets: Evidence from India. Asian Journal of Finance & Accounting, 9(1), 45–62. 6. Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425–442. |
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