A Low-Risk vs. Market-Based Portfolio in Equity Market: Evidence from Global Financial Crisis and Global Pandemic Crisis in Pakistan

Muhammad Wajid Raza, Bahrawar Said and Ijaz Hassan

Audit and Accounting Review, 2024, vol. 4, issue 2, 60-90

Abstract: The study tests the characteristics of a low-risk-based portfolio compared with a broader market-capitalization weighted portfolio (benchmark portfolio) in Pakistan Stock Exchange (PSX). This study considers all listed stocks at PSX as an investment universe. Low-risk stocks were assessed by measuring the idiosyncratic risk. Extensive back-tests were performed to compare the financial performance for 2005-2022. Results show that the market-capitalization-based portfolio outperforms the low-risk-based portfolio in terms of annualized returns. However, the latter significantly reduces the risk and leads to superior risk-adjusted performance. The low-risk portfolio indicates resilience to market turmoil and reduces the downside risk of the market portfolio. The risk-return relationship appears to be stronger in the case of idiosyncrasies. The effect of the GFC-2008 and the GPC-2020 are also investigated; the results indicate that a low-risk-based portfolio carries higher returns while the market capitalization portfolio carries relatively higher risk. Both individuals and institutional investors can enhance the risk-adjusted performance of their portfolios by adopting a low-risk-based strategy.

Keywords: Low-Risk Portfolio; Market-based Portfolio; Performance Evaluation; Pakistan Stock Exchange (PSX) (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://journals.umt.edu.pk/index.php/aar/article/view/6455/2895 Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:aarumt:3611

Access Statistics for this article

Audit and Accounting Review is currently edited by Muhammad Hassan Danish

More articles in Audit and Accounting Review from University of Management and Technology, Lahore, Pakistan School of Commerce and Accountancy, University of Management and Technology, Lahore, Pakistan. Contact information at EDIRC.
Bibliographic data for series maintained by Asma Amantullah ().