Pricing of foreign exchange risk and market segmentation: Evidence from Pakistan's equity market

Sara Azher and Javed Iqbal

Journal of Asian Economics, 2016, vol. 43, issue C, 37-48

Abstract: This paper undertakes empirical analysis to investigate whether foreign exchange rate risk is priced, and the extent to which the Pakistani equity market is integrated into world equity markets. For the period January 1993–January 2013, we investigate unconditional pricing using the iterated generalized method of moments, employing industry and size portfolios formed from 180 firms traded on the Karachi Stock Exchange. Using the multi beta asset pricing model, we find that exchange risk is priced into the Pakistani equity market over the full sample period. Moreover, we find strong evidence that the Pakistani equity market is segmented from world markets, especially in the post 9/11 period.

Keywords: Foreign exchange risk; Emerging markets; Multi beta asset pricing models; Market segmentation (search for similar items in EconPapers)
JEL-codes: F31 G15 G19 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:43:y:2016:i:c:p:37-48

DOI: 10.1016/j.asieco.2016.03.001

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