Abstract:

The paper intends to establish the importance of expectations and confidence of Indian investors on the financial market in India. For this how a risky asset is priced? It is necessary to know. It is the theory of equilibrium between risk and return. The findings of this paper support Capital Asset Pricing Model in Indian stock market in establishing the trade-off between risk and return and also help in understanding the importance of diversification in India. For individual security perspective, the security market line (SML) is made use of and its relation to expected return and systematic risk (beta) to show how the market must price individual securities in relation to their security risk class. The SML enables us to calculate the reward-to-risk ratio for any security in relation to that of the overall market. Therefore, when the expected rate of return for any security is deflated by its beta coefficient, the reward-to-risk ratio for any individual security in the market is equal to the market reward-torisk ratio.

Description:

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