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Cross-Sectional Variation in Stock Returns: Evidence from an Emerging Market

Author

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  • Sana Tauseef

    (Institute of Business Administration (IBA), Karachi)

Abstract

Fama and French (1992) reported that the two fundamental factors, size and book-to-market (BM) explains the cross-sectional variation in stock returns and the relationship between beta and average returns is flat. This study reports the market risk as the most significantly priced factor for Pakistan?s stocks. Investors in Pakistan?s equity market are compensated for the size, BM and momentum factors, but the relationship between risk and return as given by Capital Asset Pricing Model (CAPM) is strong and remains powerful even with the addition of size, BM and momentum factors. The significant role of beta reported for Pakistan?s stocks justifies the use of CAPM in stock valuation.

Suggested Citation

  • Sana Tauseef, 2017. "Cross-Sectional Variation in Stock Returns: Evidence from an Emerging Market," Proceedings of Economics and Finance Conferences 4807087, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:4807087
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Market Beta; Size; BM Ratio; Momentum; Pakistan Stock Exchange.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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