Study of Capital Asset Pricing Model in Nordic Stock Market

This study focused on studing the impacts of using CAMP in estimating the performance of the Nordic stock market. Random sampling was used and a total of 35 companies were selected for the case study. CAPM formula, as formualted by previous studies, was used to estimate the performance of these companies and various anayses has done on the data including regression, t-test and Jensen alpha tests. From the descriptive statistics, it was found that the average beta was 0.0191 while the maximum beta was 0.759. This implies that the selected Nordic stocks had a systematic risk of 99% lower than the index. Further, Jensen Alpha analysis showed that the Nordic stock has outperformed the market’s expected return based on CAPM productions. However, looking at the t-test values, there has been a significant change in the systematic risk in Nordic stocks and at the same time, there has been a significant change in the unsystematic risk of this market. The regression analysis shows that there was a positive association betwen beta and daily returns with an increase in beta leading to a possible increase in actual return. Therefore, the finding was not statistically significant. The expected return was also calculated. The finding showed that beta is not the only factor to be considered when making investments in the Nordic stock markets. In conclusion, the study finds that CAPM is not an accurate model to be used in measuring the expected returns of investments in the Nordic markets