A. KADER1*, M. A. SALAM2 and H. HOSSAIN3
1=Md. Abdul Kader, Lecturer in Marketing, Asian University of Bangladesh, Dhaka, 2Md. A. Salam, Lecturer in Accounting, Asian University of Bangladesh, Dhaka and 3Hanif Hossain, Lecturer in Marketing, Asian University of Bangladesh, Dhaka, Bangladesh. *Corresponding author’s Email: ouvi08@yahoo.com.
ABSTRACT
The study was conducted at the Department of Business Administration, Asian University of Bangladesh, Dhaka, Bangladesh during 11 November 2017 to 30 November 2017. Capital Asset Pricing Model is the basic theory that links together risk and return for all assets. It focuses non-diversifiable risk and return for all assets. Non-diversifiable risk is the relevant portion of an asset’s risk related to factors that affect all firm and it can not be eliminated through diversification. Beta coefficient is the measure of non-diversifiable risk i.e. the index of the degree of movement of an asset’s return in response to a change in market return. Market return is the return on the market portfolio of all traded securities CAPM is applicable in efficient market in which there are many small investors, having same information for securities, no restrictions on investment, no taxes and no transaction costs and every investor prefers higher return and lower risk. Practically these situations are unrealistic. The basic insights of the model are extended and generalized in the intertemporal CAPM (ICAPM) of Robert Merton and the consumption CAPM (CCAPM) of Douglas Breeden and Mark Rubinstein. Arbitrage Pricing Model is a newer theory as it considers some other economic factors exceeding market risk line, firm’s size and time factors.
Keywords: CAPM, Market risk line, Firm’s size and Time factors