ASSESSING THE EFFICACY OF THE CAPM IN PORTFOLIO SELECTION

Samwiel Adel Ayyad Tawdrous

Diplomová práce

Abstract:

This study evaluates the effectiveness of the CAPM in assessing risk-adjusted returns and guiding portfolio selection for NIFTY 50 companies listed on the National Stock Exchange of India during 2014-2024. Grounded in modern portfolio theory, the research applies the CAPM framework to examine the relationship between systematic risk, expected returns, and actual market performance. Using secondary data and empirical estimation of beta, risk, and alpha values, the study identifies undervalued and overvalued securities and constructs a CAPM-based portfolio to test the model’s reliability. The results reveal substantial deviations from theoretical expectations, as many high-beta stocks failed to yield proportionally higher returns while several low-beta firms produced excess gains. Most securities exhibited positive alpha values, indicating persistent underestimation of returns by CAPM and highlighting inefficiencies within the Indian equity market. The constructed portfolio significantly outperformed the market benchmark, confirming the practical usefulness of alpha-based screening despite CAPM’s limited predictive power. Overall, the findings demonstrate that while CAPM remains a valuable theoretical framework for preliminary valuation and risk assessment, it does not fully explain return behaviour in India’s dynamic and partially efficient market. The study concludes that incorporating multi-factor approaches may provide a more comprehensive understanding of stock pricing dynamics.

Keywords

Capital Asset Pricing Model, Indian Financial System, National Stock Exchange, NIFTY 50, Portfolio Selection, Return Analysis, Risk Analysis, Stock Market, Stock Valuation, Treasury Bill Rate

Jazyk práce: angličtina

Datum vytvoření / odevzdání či podání práce: 2. 12. 2025

Obhajoba závěrečné práce

• Obhajoba proběhla 6. 2. 2026
• Vedoucí: doc. Ing. Karel Malec, Ph.D.
• Oponent: Karolína Curyová, externi

Česká zemědělská univerzita v Praze

Provozně ekonomická fakulta

Magisterský studijní program:
Economics and Management