Applicability of CAPM in the context of banking stock returns in Nepal
Capital Asset Pricing Model (CAPM) is one of the widely used measures of calculating the expected stock return. This study aims to find the applicability of CAPM in Banking stock return in Nepal and to establish risk and return relationship for individual securities. In this paper it is also tried to find whether the individual securities are overvalued or undervalued using CAPM so as to help the investors to take their buy and sell decision. Closing prices of top five commercial banks on the basis of their market capitalization in 2019 have been considered. The basic model developed by William Sharpe (1964) and other authors in different times issued to serve the purpose. The research finds no applicability of CAPM in in banking stock return as the difference between expectations and the actual results is very high at normal risk level.