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Asset Pricing Behaviour with Dual-Beta in Case of Pakistani Stock Market

Author

Listed:
  • Attiya Y. Javid

    (Pakistan Institute of Development Economics, Islamabad)

  • Eatzaz Ahmad

    (Department of Economics, Quaid-i-Azam University, Islamabad)

Abstract

This study investigates the dynamics of beta by the asymmetric response of beta to bullish and bearish market environment on 50 stocks traded in Karachi Stock Exchange during 1993-2007. The results show that the betas increase (decrease) when the market is bullish (bearish). The results however suggest that investors receive a positive premium for accepting down-side risk, while a negative premium is associated with up-market beta. The results suggest that the conditional Fama and French three factor model has performed better than the conditional CAPM when news asymmetry was taken into account compared with the unconditional Fama and French three factor model and the unconditional dual-beta CAPM in explaining the relationship in beta and returns in case of Pakistani market.

Suggested Citation

  • Attiya Y. Javid & Eatzaz Ahmad, 2011. "Asset Pricing Behaviour with Dual-Beta in Case of Pakistani Stock Market," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 50(2), pages 95-118.
  • Handle: RePEc:pid:journl:v:50:y:2011:i:2:p:95-118
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    References listed on IDEAS

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    More about this item

    Keywords

    Beta Instability; High Market Beta; Low Market Beta; EGARCH Model; News Asymmetry; Fama and French Three Factor Model;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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