Contact Us

For Marketing, Sales and Subscriptions Inquiries
Rockefeller Center, 45 Rockefeller Plaza
20th Flr Unit #5, New York, NY 10111
United States

Conference List

Financial Risk and Management Reviews

June 2020, Volume 6, 1, pp 14-21

Evaluating the Effectiveness of CAPM and APT for Risk Measuring and Assets Pricing

Fahim Afzal


Pan Haiying

Fahim Afzal 1 ,

Pan Haiying 1 
  1. Business School of Hohai University, Nanjing, Jiangsu, PR. China. 1

on Google Scholar
on PubMed

Pages: 14-21

DOI: 10.18488/journal.89.2020.61.14.21

Share :

Article History:

Received: 26 November, 2019
Revised: 30 December, 2019
Accepted: 04 February, 2020
Published: 18 March, 2020


Persistent with the problem of quantifying the risk associated with securities, this study examines the applicability and validity of Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) while evaluating the stock prices and returns of listed companies in the Pakistan stock exchange. While examining the applicability of CAPM and APT, this study considers the stock return of top ten sectors listed in stock exchange from the period of 2014 to 2019. The result shows that the application of APT for risk estimations may not be showing satisfactory results from the observed data. On average, the p-value is more than 30% for all factors which should be less than 5%. Therefore, in order to compare the application of methods and find out the stock risk, it can be concluded that CAPM approach is more reliable than APT. Thus, it is suggested to adopt the CAPM approach to estimate the realistic stock returns. Additionally, the investor can also consider different indigenous and exogenous economic factors according for calculating market risk and maximizing the return.
Contribution/ Originality
This study contributes in the existing literature in a way to show that CAPM is still a valid tool to estimate the return in Pakistani capital market, which implies that the market risk can better be estimated by the companies. Investors must consider the market index performance for realistic stock return rather to follow other economic indicators.


CAPM, APT, Risk analysis, Stock return, Stock risk, Asset pricing.



Al Refai, H. (2011). Empirical test of the relationship between risk and returns in Jordan capital market. Available at: SSRN 1443367.

Ataullah, A. (2001). Macroeconomic variables as common pervasive risk factors and empirical content of the arbitrage pricing theory in Pakistan Ali Ataullah. Lahore Journal of Economics, 6(1), 56-74. Available at:

Bhatti, U., & Hanif, M. (2010). Validity of capital assets pricing model: Evidence from KSE-Pakistan. European Journal of Economics, Finance and Administrative Sciences, 20.

Black, F., Jensen, M. C., & Scholes, M. (1972). The capital asset pricing model: Some empirical tests. Studies in the Theory of Capital Markets, 81(3), 79-121. Available at:

Dash, M., & Rishika, R. (2011). Asset pricing models in Indian capital markets. Indian Journal of Finance, 5(11), 4-10.

Elbannan, M. A. (2015). The capital asset pricing model: An overview of the theory. International Journal of Economics and Finance, 7(1), 216-228. Available at:

Harshita, S., Singh, & Surendra, S. Y. (2015). Indian stock market and the asset pricing models. Procedia Economics and Finance.

Hundal, S., Eskola, A., & Tuan, D. (2019). Risk–return relationship in the finnish stock market in the light of Capital Asset Pricing Model (CAPM). Journal of Transnational Management, 24(4), 305-322. Available at:

Iqbal, J., & Haider, A. (2005). Arbitrage pricing theory: Evidence from an emerging stock market. Lahore Journal of Economics, 10(1), 123-139. Available at:

Jagannathan, R., & Wang, Z. (1996). The conditional CAPM and the cross‐section of expected returns. The Journal of Finance, 51(1), 3-53. Available at:

Javid, A. Y., & Eatzaz, A. (2009). Testing multifactor capital asset pricing model in case of Pakistani market. International Research Journal of Finance and Economics, 25(2009), 114-138.

Laubscher, E. R. ( 2019). A review of the theory of and evidence on the use of the capital asset pricing model to estimate expected share returns. Meditari Accountancy Research, 10(1), 131-146.

Lintner, J. (1965). Security prices, risk, and maximal gains from diversification. The Journal of Finance, 20(4), 587-615. Available at:

Qu, Z., & Perron, P. (2007). Estimating and testing structural changes in multivariate regressions. Econometrica, 75(2), 459-502. Available at:

Ross, S. (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory, 13(3), 341-360.

Shamim, M. A., Abid, Y., & Shaikh, E. A. (2014). Validity of capital asset ricing model in Pakistan’s capital market (Karachi Stock Exchange). Journal of Emerging Issues in Economics, Finance and Banking, 3(4), 1141-1149.

Sharpe, W. F. (1964). Capital asset prices: A theory of market equilibrium under conditions of risk. The Journal of Finance, 19(3), 425–442. Available at:

Siregar, E. I., & Diana. (2019). The impact of political risk and macro economics on stock return at Indonesia stock exchange (An Approach of Arbritage Pricing Theory (APT). KnE Social Sciences, 3(26), 744-772. Available at:


Google Scholor ideas Microsoft Academic Search bing Google Scholor


This study received no specific financial support.

Competing Interests:

The authors declare that they have no competing interests.


Both authors contributed equally to the conception and design of the study.

Related Article

( 1 ) Evaluating the Model of Demand for Money in Nigeria
( 2 ) Evaluating the Effectiveness of CAPM and APT for Risk Measuring and Assets Pricing
( 3 ) Relationships Between Leadership Roles and Project Team Effectiveness as Perceived by Project Managers in Malaysia
( 4 ) Relationships among Team Trust, Team Cohesion, Team Satisfaction and Project Team Effectiveness as Perceived by Project Managers in Malaysia
( 5 ) Moderating Effects of Project Management Experience, Project Team Size, Project Duration and Project Value Size on the Relationship between Project Manager’s Leadership Roles and Project Team Effectiveness in Malaysia
( 6 ) Emotional Workgroup Performance and Group Effectiveness Egyptian Context
( 7 ) Comparative Analysis of the Effectiveness of Coub-Douglas, Real Business Cycle, and Keynsian Growth Models in Determining Economic Growth in Nigeria
( 8 ) An Evaluation of Effectiveness of Oversight Committees: A Case of City of Johannesburg, Section 79 Committees
( 9 ) How can Female Executives Shape the Effectiveness of Executive Compensation?- A Multi-Dimensional Approach
( 10 ) The Effectiveness of the Production of Healthy Rice in Comparison with other Rice Varieties in the Upper Northern Region of Thailand
( 13 ) Climate Change Adaptation in Semi-Arid Dodoma: An Experience from Eco-Village
( 15 ) Consideration the Relationship Between Information Communications Technology and Economic Growth in Top 10 Economic
( 16 ) The Development of Participated Environmental Education Model for Sustainable Mangrove Forest Management on Eastern Part of Thailand
( 17 ) The Impact of Investment Climate Reforms on the Development of Small and Medium Sized Enterprises in Nigeria: A Policy Brief
( 18 ) Importance of Corporate Governance Quality and Voluntary Disclosures of Corporate Governance Information in Listed Malaysian Family Controlled Businesses
( 19 ) How Telecommunication Development Aids Economic Growth: Evidence from Itu Ict Development Index (IDI) Top Five Countries for African Region
( 20 ) Development of Logarithmic Equations for Statistical Sample Determination
( 21 ) A Review on Criteria for Green Infrastructure to be Adopted by Local Authorities
( 22 ) Cross-Cultural Leadership Intelligence: Recommendations for Kenya
( 23 ) Improved Performance Through Empowerment of Small Industry
( 24 ) Challenges of Human Rights Abuses in Nigerian Democratic Governance – Which Way Forward ?
( 25 ) Teachers Characteristics and Students’ Performance Level in Senior Secondary School Financial Accounting
( 26 ) Survey of Students’ Academic Achievement and Mathematics Identity-Formation
( 27 ) Ensuring Quality Provision of Education for All: Discovering Challenges Faced by Teachers of Students with Learning Disabilities in Regular Primary Schools in Masvingo District
( 28 ) A Study of Transnational and Transformation Leadership Styles and Factors Affect The Leadership Style
( 29 ) The Role of Information and Communication Technology in Rural Socio-Economic Development in Africa
( 30 ) Conceptual Framework of Green Infrastructure Performance Evaluation for Local Authority
( 31 ) Social Security; A Public Policy for Good Governance in Nigeria: The Role of Nigerian Legislature
( 32 ) Foreign Direct Investment (FDI) and Employment: A Case of Province of Punjab, Pakistan
( 33 ) Government Borrowing Behaviour: Implications for Private Sector Growth in Nigeria
( 34 ) The Association Between Corporate Risk Disclosure and Firm Performance in Emerging Country – The Case of Egypt
( 35 ) Moderating Effect of Demographics on Monetary Motivation and Employees Job Performance Relationship: Evidence from Malaysia
( 36 ) Is Brics a Viable Solution for Russia in the Context of the Present Eu’s Economic Sanctions?
( 37 ) Structural Breaks and the Long-Run Stability of Demand for Real Broad Money Function in Nigeria: A Gregory-Hansen Approach
( 38 ) The Impact of Dividend Policy on Shareholders’ Wealth before and After Financial Melt down: Evidence from FMCG Sector in India
( 39 ) Stock Market Performance and Economic Growth: Evidence from Nigeria Employing Vector Error Correction Model Framework
( 40 ) The Biodiesel Market in Brazil and the Prospects for the Sector
( 41 ) Challenges and Survival Strategies for Women in Small Scale Catering Business: A Case Study of Siyaso Magaba, Mbare
( 42 ) The Influence of Information Technology and Communication Supply Chain Management Performance for Greater SME Manufacturing in Aguascalientes
( 43 ) Emergent Behavior of “Rational” Agents in Some Forgotten N-Person Games
( 44 ) Leveraging Telematics for Optimal Fleet Performance
( 45 ) Income Elasticity of Poverty: Estimates for South Asian Countries
( 46 ) Profit And Loss Sharing As an Offshoot for Bank Stability: A Comparative Analysis
( 47 ) The Potential of Rural–Urban Linkages for Sustainable Development and Trade
( 48 ) Workplace Bullying: Modelling Construct Validity in an Australian Public Sector Workforce
( 49 ) Role of Foreign Investment and External Debt in Determination of Exchange Rate
( 50 ) An Assessment of the Impact of Information Communication Technology (ICT) On the Administration of Public Records: A Case Study of the Bolgatanga Municipal Assembly in the Upper East Region of Ghana-West Africa
( 51 ) The Effects of Changes in Accounting Standards on Value Relevance of Financial Statement Information of Malaysia and Nigeria Banks
( 52 ) Estimating Value at Risk for Sukuk Market Using Generalized Auto Regressive Conditional Heteroskedasticity Models
( 53 ) Share Options, Share Award and Firm’s Performance: Evidence from Malaysian Public Listed Companies
( 54 ) The Effect of Outsourcing on Anglogold Ashanti Obuasi Mines Performance
( 55 ) Insecurity and Foreign Direct Investment in Nigeria
( 56 ) The Mediating Effect of Market Orientation on the Relationship between Entrepreneurial Orientation Dimensions and Organizational Performance: A Study on Banks in Libya
( 57 ) Various International Experiences in Waste Management - Useful Lessons for Algeria
( 58 ) The Investment Performance of Socially Responsible Investment in Japan
( 59 ) Investigating the Demand of Small Hotel and Restaurant Businesses for Bank Financing: The Case of Turkey
( 60 ) A Review on EU Transportation Projects within the Case of Turkey for European Union Regional Development Policy
( 61 ) Land Use/Land Cover Change and its Effects on Bamboo Forest in Benishangul Gumuz Region, Ethiopia
( 62 ) Appointment of Directors and Performance of Deposit Money Banks in Sub Saharan Africa: Do We Need More Executive or Non-Executive Directors?
( 63 ) Development of the National Economies and the Foreign Trade Relations between Ukraine and Bulgaria (In the Period 2005-2014)
( 65 ) Forecasting-Based Carry Trade Using Pegged Currency: A Case of Omani Rial
( 66 ) The Indirect Impact of Overconfidence on the Performance of Tunisian Firms Through their Financing Structure
( 67 ) A Theoretical Analysis Upon the Environmental Health and Justice Issue: A Case Study for a Comparison Between G20s Unitary and Federal Members
( 68 ) Academic Mobility for Engineering and Technology Graduates in Africa: Lessons and Experiences from the Implementation
( 69 ) Rice Farmer and Capital Formation: A Case Study of Rice Farmer's Credit Cooperative in Itoikin, Ikosi-Ejirin LCDA, Lagos State
( 70 ) How the Principles of the Sharing Economy Can Improve Organizational Performance of the US Public School System
( 71 ) Effect of Budget Defict on Private Investment in East African Community for the Period 1981-2015: A Panel Data Analysis
( 72 ) An Econometric Planning Model of Urban Forestry as a Measure of Sustainability: A Matrix of Action and Change
( 73 ) Relevance of Stakeholders Theory, Organizational Identity Theory and Social Exchange Theory to Corporate Social Responsibility and Employees Performance in the Commercial Banks in Nigeria
( 74 ) Analyzing Factors Affecting the Success of Social Media Posts for B2b Networks: A Fractional-Factorial Design Approach
( 75 ) The Influence of Communication, Work Motivation and Career Development on Elementary School Teacher’s Job Performance in Medan, Indonesia
( 76 ) Effects of Corporate Social Responsibility on Banks Financial Performance in Nigeria: A Study of United Bank of Africa
( 77 ) Construction and Application of Water Resource Accounting Information System in Taiwan
( 78 ) Is Alumni Salary an Appropriate Metric for University Marketers?
( 79 ) Participatory Processes in Planning for Self-Help Housing Provision in South Africa: Policies and Challenges
( 80 ) The Moderating Effect of Governance Mechanisms on the Relationship Between Innovation Strategy and the Performance
( 81 ) Public-Private Partnership as a Strategy for E-Governance Funding in Africa: The Gains and the Pains
( 82 ) Employee Loyalty and Organizational Citizenship Behaviour in the Port Harcourt Area Command of the Nigeria Police Force
( 83 ) Effect of Institutional Factors on Foreign Direct Investment in Nigeria
( 84 ) Macroeconomic Indicators and Capital Formation Growth in Nigeria: A New Evidence
( 85 ) Foreign Capital Inflows and Unemployment in Nigeria: A New Evidence from ARDL-Bounds Testing Approach
( 86 ) Electronic Banking Innovations and Selected Banks Performance in Nigeria
( 87 ) An Empirical Investigation into the Key Drivers of Economic Performance in the CEMAC Zone: A Panel Corrected Standard Errors Approach
( 88 ) Forecasting Equity Index Volatility: Empirical Evidence from Japan, UK and USA Data
( 89 ) Disaggregated Foreign Capital Inflows and Economic Growth in a Developing Economy: Empirical Evidence from Nigeria
( 90 ) The Importance of Public Administration Towards Achieving Good Governance for Positive National Development by Using SmartPLS 3
( 91 ) Assessment of Dual Carriageway for Sustainable Socio-Economic Development in Ado Ekiti, Nigeria
( 92 ) Industrialization and Economic Growth in Sub-Saharan Africa: The Role of Human Capital in Structural Transformation
( 93 ) Trade Policy and Democracy for Development in Central African Countries
( 94 ) Exchange Rate and Foreign Reserves Interface: Empirical Evidence from Nigeria
( 95 ) Forecasting Prices of Three Important Agricultural Crops in Bangladesh
( 96 ) External Debt and Economic Growth: Two-Step System GMM Evidence for Sub-Saharan Africa Countries
( 97 ) The Impact of Organisational Culture on Public Sector Performance: A Case Study of Local Authorities in Zimbabwe
( 98 ) Foreign Direct Investment in Zimbabwe: The Role of Uncertainty, Exports, Cost of Capital, Corruption and Market Size
( 99 ) Gamification on Sales Force Performance in Nigeria Bottling Company
( 100 ) Foreign Direct Investment - Growth Linkage in Sub-Saharan Africa: Is Governance a Mediating Factor?
( 101 ) An Investigation of the Impact of Organisational Structure on Organisational Performance
( 102 ) Study on the Effect of Foreign Investment on Anhuis Industrial Structure Optimization
( 103 ) Exploring the Asymmetric Linkage between Commodity Prices and Fiscal Performance in Nigeria
( 104 ) Assessing the Perceived Value of Customers for being Satisfied towards the Sustainability of Hypermarket in Malaysia
( 105 ) Effects of Socio-Cultural Diversity on the Performance of Private Health Care Organizations in Kogi State
( 106 ) Organizational Memory and Employee Performance in Federal Parastatals in Enugu State of Nigeria
( 107 ) The Effect of Corporate Social Responsibility Disclosure on Corporate Financial Performance
( 108 ) Exchange Rate Pass-through to Prices: VAR Evidence for Albania
( 109 ) Can Small-Cap Active Funds Substantially Outperform the Market Over Time?
( 110 ) Exchange Rate Volatility, Foreign Exchange Market Intervention and Asymmetric Preferences
( 111 ) Value for Money (VFM) Audit and Public Sector Performance in Afikpo North Local Government Area of Ebonyi State, Nigeria
( 112 ) German Exports, Economic Growth and Foreign Demand: An Analysis of the Period 2000–2017
( 113 ) Multivariate Analysis in Formulation of the Benefit-Cost Index Related to the Sugarcane Production System in the Quirinopolis Municipality Productive Center, Goias, Brazil
( 114 ) Does External Borrowing Affect Economic Growth? A Revisit of the Age-Long Debate for Nigeria
( 115 ) Determinant of MSMEs Performance and its Impact on Province GRDP in Indonesia
( 116 ) Perceived Poverty and Alleviation Efforts of Kogi State Community and Social Development Agencies in Kogi State: An Empirical Investigation
( 117 ) Determinants of Financial Performance and its Impact on the Growth of Islamic Bank Assets on Indonesia
( 118 ) The Role of Social Security Program for Enhancing Seniors Longevity
( 119 ) Trade Union Performance and Industrial Relations Climate in the Nigerian Petroleum Sector
( 120 ) An Empirical Investigation of Real Exchange Rate Responses to Foreign Currency Inflows: Revisiting the Dutch Disease Phenomenon in South Asia
( 122 ) Entrepreneurship Training for Mitigating Unemployment in Nigeria: How have the Tertiary Institutions Fared?
( 124 ) Do Derivative Instruments Increase Firm Risk for Indonesia Non-Financial Companies?
( 125 ) Determinant of Tax Revenue Effort in Sub-Saharan African Countries: A Stochastic Frontier Analysis
( 126 ) Developing a Conceptual Model for Antecedents of Resistance to Change towards Sustainable Construction Practices
( 127 ) Export- Led Growth Hypothesis for Ghana: A TVAR & TVECM Analysis
( 128 ) A Process Model for Conformance of Health Information Systems: Towards National Interoperability
( 129 ) Likely Effect of Gender and Education on Information Adoption and Utilization among Sugarcane Farmers in the Nyanza Region, Kenya
( 130 ) Change Management and Firm Performance of Selected Deposit Money Banks in Owerri, Imo State, Nigeria
( 131 ) The Effect of Disruptive Factors on Inventory Control as a Mediator and Organizational Performance in Health Department of Punjab, Pakistan
( 132 ) The Contingent Fit between Management Control System and Capabilities on Sustainability Performance
( 133 ) The Impact of Merger and Acquisition on the Financial Performance of the Nasdaq Listed Small Size Technology Companies
( 134 ) Exchange Rate Fluctuations and the Performance of Nairobi Securities Exchange Market in Kenya During the Coronavirus Pandemic
( 135 ) A Qualitative Analysis of the Impediments to Business Innovation and Information Management in Nigeria: A Policy Stance
( 136 ) Analysis of Demographic Factors on Perceptions of Inventory Managers towards Healthcare Performance
( 137 ) Contribution of Domestic Direct Investment and Direct Foreign Investment to Economic Growth in Indonesia Era Joko Widodo
( 138 ) The Euribor and EONIA Reform: Achieving Regulatory Compliance while Protecting Financial Stability
( 139 ) The Financial Decentralization Policy for Local Development in Cameroon: An Econometric Analysis
( 140 ) Innovation Efforts in the Face of Institutional Obstacles in Latin America
( 141 ) Assessing Access to Comprehensive HIV Treatment Services for Men Who Have Sex with Men and Female Sex Workers in the Bamenda Health District
( 142 ) The Promise and Reality of Public Sector Reform – A Case Study of the Implementation of Trinidad and Tobagos Health Sector Reform
( 143 ) Sustainability Performance and Sustainable Development Goals
( 144 ) Impacts of Domestic Savings and Domestic Investment on Economic Growth: An Empirical Study for Pakistan
( 145 ) A Study on Financial Performance of Transport & Warehouses Firms Listed on the Hanoi Stock Exchange
( 146 ) IT Governance as Drivers of Dynamic Capabilities to Gain Corporate Performance Under the Effects of Environmental Dynamism
( 147 ) Fertility, Education, Labor Force Outcomes, and Cultural Acculturation of Immigrants
( 148 ) Child Support Enforcement and Infants Health Outcomes
( 149 ) Nexus among Foreign Exchange Reserve, Remittance and Trade Openness: An Empirical Investigation in the Case of Bangladeshi Economy
( 150 ) Is Foreign Direct Investment the Way Forward for Manufacturing Sector Renaissance in Nigeria?
( 151 ) Economic and Noneconomic Forces on Remittance Receiving: A Panel Analysis of Top Remittance Sending Countries towards Bangladesh
( 152 ) Income Smoothing, Earnings Management and the Credibility of Accounting Information
( 153 ) Does Buyer Power Contribute to Environmental Sustainability Performance in Supply Chains?
( 154 ) Relational Capabilities under Moderating and Mediating Effects to Understand their Impacts on Firm Financial Performance
( 155 ) Inflationary Rate in Nigeria: Impact of Foreign Capital Inflows
( 156 ) Financial Integration and International Risk Diversification
( 159 ) Awareness on Air Pollution and Risk Preparedness among Residents in Kigali City of Rwanda
( 160 ) Analysis of Effect of Profitability, Capital, Risk Financing, the Sharia Supervisory Board and Capabilities Zakat in Islamic Perspective with Circular Approach Causastion on Islamic Banks in Indonesia
( 163 ) The Relationship between Creative Accounting Risks and Auditing Risks from the Perspective of External Auditors in Saudi Arabia
( 164 ) Risk Management and Shareholders’ Wealth Maximization