Testing the reliability Capital Asset Pricing Model (CAPM): empirical study on three sectors in Bursa Malaysia second board / Dahliana Jamian

This study examine the Capital Asset Pricing Model for the Malaysia stock market using monthly stock return from the three sectors in Bursa Malaysia second board for the period 1998 to 2005. The purpose of the study is to examine thoroughly if the CAPM holds true in the capital market of Malaysia and to test the reliability CAPM by checking on different sectors. In particular, a risk that can be diversified away when held along with other investments in a portfolio is, in a very real way, not a risk at all. The CAPM gives us insights about what kind of risk is related to return. Then CAPM can serve as a benchmark for understanding the capital market phenomena that cause asset prices and investor behavior to deviate from the prescriptions of the model. Then, I also will review the history of empirical work on the model and what it says about shortcomings of the CAPM that pose challenges to be explained by more complicated. The Secondary data being used for this study are monthly stock price, 90-days T-Bills Rate and KLCI Index. This study concentrated on the 60 companies listed in Second Board of Bursa Malaysia and 10 companies were selected from each three different sector. This study is conducted by using SPSS in order to find the beta value of the security through regression. Based on the analysis, the findings of this study are not supportive of the theory's basic statement that higher risk (beta) is associated with higher levels of return. However, the results obtained lend support to the linear structure of the CAPM equation being a good explanation of security returns