Estimation, Comparison and Association of Realized Returns with Calculated Returns (Capital Asset Pricing Model): A Case of IT Sector in India.

Abstract

IT sector is one of the key sector in the Indian economy. The growth rate of the industry is also increasing at a remarkable rate. A set of 10 companies from the IT sector that are being traded on the Bombay Stock Exchange of India are considered. Daily closing prices of the scrips are collected across the period of study of 19 years i.e. (2000-2019). The review of literature on these types of studies suggested the usage of the CAPM model to arrive at the expected returns. From the CAPM computations, it is found that all the selected companies are overvalued in the market. The risks and returns are calculated and the beta values of the individual companies is shown in the graph. Regression and Correlation of the Realized return with CAPM returns is done which showed a positive correlation for all the scrips. To examine the relation between beta value and market returns, correlation and regression is done.

Keywords: CAPM model, Market returns, IT sector, Realized returns, Correlation