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Size and Value Premium inKarachi Stock Exchange

Author

Listed:
  • Nawazish Mirza

    (Lahore School of Economics, Pakistan.)

  • Saima Shahid

    (Lahore School of Economics, Pakistan.)

Abstract

This study evaluates the ability of the Fama and French Three Factor model to explain a cross section of stock returns in the Karachi Stock Exchange (KSE). Following Fama and French factor approach, we sorted six portfolios by size and book to market. The sorted portfolios were constituted to represent stocks from each and every sector of KSE. Using Daily returns from January 2003 to December 2007, the excess returns for each portfolio were regressed on market, size and value factors. Our findings, in general, supported the notion of the three factor model. The three factor model was able to explain the variations in returns for most of the portfolios and the results remain robust when the sample was reduced to control for the size effect. Our findings are consistent with most of the studies that suggested the validity of the three factor model in emerging markets. These results warrant for the inclusion of size and value factors for valuation, capital budgeting and project appraisals, thus, having substantial implications for fund managers, analysts and investors.

Suggested Citation

  • Nawazish Mirza & Saima Shahid, 2008. "Size and Value Premium inKarachi Stock Exchange," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 13(2), pages 1-26, Jul-Dec.
    • Handle: RePEc:lje:journl:v:13:y:2008:i:2:p:1-26
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    References listed on IDEAS

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    Cited by:

    1. Tanveer Ahmad; Syed Muhammad Amir Shah, 2017. "The Value-Growth Indicators and Value Premium: Evidence from Pakistan Stock Exchange," South Asian Journal of Management Sciences (SAJMS), Iqra University, Iqra University, vol. 11(2), pages 124-139, Fall.
    2. Nawazish Mirza & Krishna Reddy, 2017. "Asset Pricing in a Developing Economy: Evidence from Pakistan," Economics Bulletin, AccessEcon, vol. 37(4), pages 2483-2495.
    3. Fahad Ali & RongRong He & YueXiang Jiang, 2018. "Size, Value and Business Cycle Variables. The Three-Factor Model and Future Economic Growth: Evidence from an Emerging Market," Economies, MDPI, vol. 6(1), pages 1-24, February.
    4. Kiran Lohano & Muhammad Kashif, 2018. "Testing asset pricing models on the Pakistan Stock Exchange," Business Review, School of Economics and Social Sciences, IBA Karachi, vol. 13(2), pages 1-19, July-Dece.
    5. Nahzat Abbas & Jahanzeb Khan & Rabia Aziz & Zain Sumrani, 2015. "A Study to Check the Applicability of Fama and French, Three-Factor Model on KSE 100-Index from 2004-2014," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(1), pages 90-100, January.
    6. 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.
    7. Gabriel Kitenga & J. M. Kilika & A. W. Muchemi, 2020. "The Moderating effect of Firm Size on the impact of Dynamic Capabilities on sustainable Performance of food manufacturing firms Kenya," Technium Social Sciences Journal, Technium Science, vol. 7(1), pages 149-182, May.
    8. Javed Iqbal & Sara Azher, 2014. "Value-at-Risk and Expected Stock Returns: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(2), pages 71-100, July-Dec.
    9. Hafiz Muhammad Zia ul haq & Muhammad Sohail Shafiq & Muhammad Kashif & Saba Ameer, 2020. "Determining Force behind Value Premium: The Case of Financial Leverage and Operating Leverage," JRFM, MDPI, vol. 13(9), pages 1-15, September.

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    More about this item

    Keywords

    Size Premium; Value Premium; Market Premium; Three-Factor Model.;
    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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