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Anomalous Returns, Risk Premiums and Diversification: Evidence from Emerging Market

Author

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  • Mohsin Sadaqat

    (National University of Sciences and Technology)

  • Hilal Anwar Butt

    (Institute of Business Administration)

Abstract

A simple size and volatility based zero-investment strategies yield 30% to 50% annual returns in Pakistan stock exchange (PSX), Pakistan. These returns are quite higher in comparison to comparable evidence for the most efficient market of the US. This study indicates that higher returns are not a vindication of market inefficiency rather, a compensation to investors for being exposed to market and illiquidity related local risks. Further, we find that PSX provides significant portfolio diversification opportunities to the international investors. These results are also manifested for other two relatively bigger emerging markets of India and Brazil with lesser diversification benefits.

Suggested Citation

  • Mohsin Sadaqat & Hilal Anwar Butt, 2017. "Anomalous Returns, Risk Premiums and Diversification: Evidence from Emerging Market," Proceedings of Economics and Finance Conferences 4807461, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:4807461
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    More about this item

    Keywords

    Zero-Investment Strategy; Annual Returns; Market Risk; Illiquidity Risk; Diversification.;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • 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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