Testing the validity of CAPM using NYSE:NASDAQ-100

Abstract

There have been countless empirical studies conducted to test the validity of the Capital Asset Pricing Model（CAPM) since its naissance. However, few have considered the New York Stock Exchange Market. The purpose of this paper is to test the CAPM to see if it holds true in the New York Stock Exchange (NYSE) using the index NASDAQ-100. I use daily stock returns for the three stocks, Amazon Inc. (AMZN), Apple Inc. (AAPL) and Tesla Inc. (TSLA) that are listed under the Nasdaq-100 index (NYSE:Nasdaq-100) during the period 1 January 2015 to 1 January 2020. The same stocks were tested using the Fama-French model and the Arbitrage Pricing Theory (APT) model. The outcomes of the utilized tests showed that the Fama-French model is the best for explaining the excess stock returns for 2 out of these 3 stocks and the CAPM model was able to interpret the excess stock returns for one of these 3 stocks. Furthermore, it was concluded that the APT model had zero effect on the excess stock returns of all three stocks. According to the findings of the empirical test, we conclude that the Capital Asset Pricing Model does not give a firm valid description of the New York Stock Exchange using Nasdaq-100 during 2015.1.1 to 2020.1.1.