Abstract:
The CAPM has been in existence for almost 60 years and still conjures up robust arguments
particularly from the sphere of business. The pertinence of the CAPM to academia is that it
resides fundamentally in archival publications and there has been a dynamic shift from the
sphere of business towards other more modern models for pricing assets.
The stamina of the CAPM eminates from its simplicity. It allows for relatively accurate
estimations of requisite returns as well as costs of equity in a straightforward manner by
using a single variable: the beta of the market.
The fundamental purpose of this research was to validate the CAPM in a modern world,
using empiric testing and to assit in the determination of an implied cost of equity for
financial services companies in the South African contect of the equity market.
One of the pertinent findings of the research was that calculations of market risk premiums
are significantly higher than anticipated, and this appeared to be the case with the costs of
equity as well. Further studies may well uncover the reasons for this discovery.
