Application of CAPM in the Chemical and Fertilizer sector: A case study of the Pakistan Stock Exchange
Keywords:CAPM, KSE-100, Chemical sector, Fertilizer sector, Pakistan Stock Exchange
This study aims to examines the Capital Asset Pricing Model (CAPM) for Chemical and Fertilizer sectors firms listed on KSE-100 from January 2010 to December 2020. The research used monthly returns of firms in the chemical and fertilizer sectors and formed three different portfolios to test the model through time series regression. KSE-100 index monthly returns are used as a proxy of market returns for this study. The findings of this study related to individual stocks support the theory’s basic statement that the risk and returns of stock are positively related to each other. Also, the portfolio of the chemical sector’s firm supported the theory. However, the portfolio of the fertilizer sector’s firms and the combined portfolio are not supportive of the theory of CAPM.