LITERATURE REVIEW

(Chaudhary, 2016)The comprehensive literature review underscores the significant relationship

between macroeconomic factors and stock market returns in India. It highlights the
application of multiple-factor models as valuable tools for understanding this connection and
guiding investment decisions. Various studies have examined the impact of specific
macroeconomic variables on the Indian stock market, emphasizing the importance of factors
like domestic inflation, output growth, and monetary policy. The research also acknowledges
deviations from random-walk behavior and the causal relationships between stock returns and
macroeconomic factors.

(Srivastava, 2010)The Capital Asset Pricing Model (CAPM) and the importance of considering
its limitations. CAPM serves as a potent tool for assessing the risk-return relationship, but it's
crucial to acknowledge that it is a model and not a crystal ball for predicting future asset
performance. The assumptions underpinning CAPM, like rational investors and efficient
markets, may not always align with real-world conditions, emphasizing the need for careful
consideration. Despite these constraints, CAPM remains a valuable resource for investors,
offering the means to estimate expected returns, compare asset risk-return profiles, and
construct diversified portfolios. It's a reminder that CAPM should be just one element in a
comprehensive investment toolkit, with additional factors like size and value playing a vital
role in shaping investment decisions, especially in the context of the Indian stock market.
Your insights contribute significantly to the discussion surrounding CAPM's application and
its relevance in real-world investment.

(Upadhyay, 2017)The validity of the standard Capital Asset Pricing Model (CAPM) has been
the subject of extensive empirical research. Early studies supported its empirical soundness in
explaining security returns. However, numerous subsequent studies, including those by
Vaidyanathan, Madhusoodanan, Sehgal, Rao, Dhankar & Singh, Manjunatha &
Mallikarjunappa, and Manjunatha & Mallikarjunappa, have challenged the standard CAPM's
restrictive nature. They found that the relationship between beta and return is not consistently
positive and significant and that other variables like size and book-to-market ratio also impact
security returns. On the other hand, some studies, such as Ansari, Mohanty, and Cannon &
Sehgal, have offered support for the standard CAPM, albeit with an acknowledgment of its
limitations.