ABSTRACT
This Chapter reviews the capital market theory and provides some empirical results. The potential investors, individual or corporation, are faced with a capital market of considerable sophistication offering a wide range of investment opportunities. The relationship between expected return and risk is the central theme of the capital market theory. It is with the problems surrounding choice under uncertainty that Markowitz and Tobin first concerned them. Capital Asset Pricing Model is a method employed for knowing the stock prices that are set every day. It can serve as a real signal of the allocative efficiency of capital resources. Capital market theory is likely to contribute substantially to explaining the behavior of relatively efficient markets, and can be a powerful tool of analysis. Capital markets in Bangladesh are in its infancy and investors are not so skill in evaluating business and economic performance like those of the developed countries.
