Capital Asset Pricing Model (CAPM) Analysis of Tanzanian Public Firms

This study explores the application of the Capital Asset Pricing Model (CAPM) to Tanzanian public firms, focusing on the Dar es Salaam Stock Exchange (DSE). CAPM, a cornerstone in asset pricing theory, offers a framework to estimate expected returns based on systematic risk, as measured by beta. Utilizing five years of financial data (2018–2023), the study analyzes nine publicly traded companies and constructs 50 distinct portfolios through permutation methods. Regression analysis reveals a positive correlation between risk (standard deviation) and return, confirming CAPM’s premise. Findings indicate that higher returns are associated with higher risks, offering investors diverse portfolio options based on risk tolerance. Efficient portfolios are identified along the Capital Market Line, balancing risk and return for informed investment decisions. This research underscores CAPM’s utility in enhancing financial literacy and optimizing investment strategies in Tanzania's emerging market. Recommendations include aligning portfolio choices with individual risk preferences and leveraging diversification for risk mitigation.