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Test of Higher Moment Capital Asset Pricing Model in Case of Pakistani Equity Market


  • Javid, Attiya Yasmin


In this study we test the mean-variance capital asset pricing model (CAPM) developed by Sharpe (1965) Lintner (1966) on individual stocks traded at Karachi Stock Exchange (KSE), the main equity market in Pakistan for the period 1993-2004 using daily and monthly data. The empirical findings do not support standard CAPM as a model to explain assets pricing in Pakistani equity market. In response to this finding first, we have extended the model to mean-variance-skewness and mean-variance-skewness-kurtosis model following Kraus and Litzenberger (1976). In the second step we allow the covariance, coskewness and cokurtosis to vary over time in autoregressive context leading to conditional three-moment CAPM and conditional four-moment CAPM. The results of unconditional and conditional higher-moments CAPM reveal that three-moment CAPM performed relatively well in explaining risk-return relationship in Pakistan during the sample period However, the results of higher-moment model indicate that systematic covariance and systematic cokurtosis have marginal role in explaining the asset price behavior in Pakistan.

Suggested Citation

  • Javid, Attiya Yasmin, 2009. "Test of Higher Moment Capital Asset Pricing Model in Case of Pakistani Equity Market," MPRA Paper 38059, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38059

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    References listed on IDEAS

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    Cited by:

    1. Akbar, Muhammad & Nguyen, Thuy Thu, 2016. "The explanatory power of higher moment capital asset pricing model in the Karachi stock exchange," Research in International Business and Finance, Elsevier, vol. 36(C), pages 241-253.
    2. Tamara Teplova & Evgeniya Shutova, 2011. "A Higher Moment Downside Framework for Conditional and Unconditional Capm in the Russian Stock Market," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 1(2), pages 157-178, December.
    3. Jawad Mohammad & Attiya Yasmin Javid, 2015. "An Analysis of Accrual Anomaly in Case of Karachi Stock Exchange," PIDE-Working Papers 2015:116, Pakistan Institute of Development Economics.
    4. repec:pje:journl:article15sumvi is not listed on IDEAS

    More about this item


    Covariance; coskewness; cokurtosis; non-normal return distribution; capital asset pricing model; time-varying moments;

    JEL classification:

    • C29 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Other
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates


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