The internal consistency of the CAPM: A test using South African unit trust data

This paper evaluates the internal consistency of the CAPM. The Gibbons, Ross and Shanken multivariate test is employed to discover if the All Share Index is mean variance efficient. South African unit trust data is used to estimate the capital market line. The data and results are consistent with the hypothesis that the CAPM is valid on the Johannesburg Stock Exchange. There is however, a joint hypothesis involved and the results are not unambiguous. The testing procedure may well be deficient. A potential failing of the Gibbons, Ross and Shanken test is identified. In addition, results of the study also enable us to comment on the performance of unit trusts and the efficiency of the Johannesburg Stock Exchange.