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Factors Effecting Systematic Risk in Isolation vs. Pooled Estimation: Empirical Evidence from Banking, Insurance, and Non-Financial Sectors of Pakistan

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  • Muhammad Nasir Sharif
  • Kashif Hamid
  • Muhammad Usman Khurram
  • Muhammad Zulfiqar

Abstract

The basic purpose of the financial manager is to maximize the wealth of shareholder by minimizing the risk. This study examines the validity of systematic risk determinants in banking, insurance, and nonfinancial sectors of Pakistan. Panel data is used for the period of 2010 to 2014. Common Effect Model, Generalized Method of Moments and Two step regression model is used to identify the impact. Common effect results identify that leverage; operating efficiency, firm size, and market value of equity have significant impact on systematic risk in the banking sector. Firm size has significant impact on insurance sector, whereas liquidity, leverage, operating efficiency, firm size, market value of equity, profitability, and dividend pay-out are significant variables in the non-financial sector. In pooled data analysis leverage, firm size, market value of equity, and dividend pay-out are significant determinants in Common Effect Model and Two Step, However in GMM indicates that profitability has also positive impact on unsystematic risk in addition to Common effect and two step regression determinants. Policy implication indicates that shareholders and investors can maximize the return at low level of risk by investing in selected portfolios. It is finally concluded that variables significance changes from sector to sector in individual spectrum but in a pooled regression leverage and market value of equity has negative impact on systematic risk, whereas firm size, profitability and dividend pay-out has positive impact on systematic risk.

Suggested Citation

  • Muhammad Nasir Sharif & Kashif Hamid & Muhammad Usman Khurram & Muhammad Zulfiqar, 2016. "Factors Effecting Systematic Risk in Isolation vs. Pooled Estimation: Empirical Evidence from Banking, Insurance, and Non-Financial Sectors of Pakistan," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 6(4), pages 287-300, October.
    • Handle: RePEc:hur:ijaraf:v:6:y:2016:i:4:p:287-300
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    References listed on IDEAS

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    2. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
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