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Single-Factor Model and Portfolio Management

In: Risk-Return Relationship and Portfolio Management

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  • Raj S. Dhankar

    (University of Delhi)

Abstract

Modern portfolioPortfolio theory began with the postulation of Capital Asset Pricing ModelCapital Asset Pricing Model (CAPM) (CAPM). It provides how a risky security is priced in competitive capital market. It is the theory of equilibrium between riskRisk and return. It postulates a positive and linear relationship between riskRisk and return, and maintains that non-market riskNon-market risk successively declines with the process of diversificationDiversification . The study examines the monthly return of composite portfolioPortfolio of 100 stocks of BSE 100BSE 100 for the period from June 1996 to May 2005. The findings are in favour of the model by asserting a positive and linear relationship between riskRisk and return. The study also reports that as diversificationDiversification is carried out, non-market riskNon-market risk successfully declines. The findings support CAPMCapital Asset Pricing Model (CAPM) in Indian stock marketIndian stock market in establishing a trade-off between riskRisk and return.

Suggested Citation

  • Raj S. Dhankar, 2019. "Single-Factor Model and Portfolio Management," India Studies in Business and Economics, in: Risk-Return Relationship and Portfolio Management, chapter 0, pages 79-93, Springer.
    • Handle: RePEc:spr:isbchp:978-81-322-3950-5_5
    DOI: 10.1007/978-81-322-3950-5_5
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