Asset Pricing Behaviour with Dual-Beta in Case of Pakistani Stock Market

Attiya Javid and Eatzaz Ahmad
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Eatzaz Ahmad: Department of Economics, Quaid-i-Azam University, Islamabad

The Pakistan Development Review, 2011, vol. 50, issue 2, 95-118

Abstract: This study investigates the dynamics of beta by the asymmetric response of beta to bullish and bearish market environment on 50 stocks traded in Karachi Stock Exchange during 1993-2007. The results show that the betas increase (decrease) when the market is bullish (bearish). The results however suggest that investors receive a positive premium for accepting down-side risk, while a negative premium is associated with up-market beta. The results suggest that the conditional Fama and French three factor model has performed better than the conditional CAPM when news asymmetry was taken into account compared with the unconditional Fama and French three factor model and the unconditional dual-beta CAPM in explaining the relationship in beta and returns in case of Pakistani market.

Keywords: Beta Instability; High Market Beta; Low Market Beta; EGARCH Model; News Asymmetry; Fama and French Three Factor Model (search for similar items in EconPapers)
JEL-codes: G12 G15 (search for similar items in EconPapers)
Date: 2011
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