Asset pricing dynamics in sustainable equity portfolios: Evidence from the Pakistan Stock Exchange

Abdul Qadeer, Lieven De Moor and Ashfaq Ahmad

Economic Research-Ekonomska Istraživanja, 2023, vol. 36, issue 3, 2147977

Abstract: Financial markets are an important segment of the economy that can play a critical role in facilitating the attainment of sustainable development goals (SDGs). The equity aligned to these objectives is designed on the principles of Shariah, which are consistent with SDGs In this study, we explore the dynamics of asset pricing in equity, listed on the newly born Pakistan Stock Exchange–Karachi Meezan Index (PSX–KMI) All Share Index as ‘Shariah-compliant’, using Fama–French asset pricing models. Although our results fail to validate the capital asset pricing model (CAPM), multifactor models perform reasonably well, with exceptions in each model. The value premium seems silent in the five-factor model, whereas the liquidity factor is more attributable in the augmented three-factor model. Despite exceptions, based on the Gibbons, Ross, and Shanken (GRS) test, we confirm the validity of multifactor models to price sustainable equity portfolios (SEPs).

Date: 2023
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DOI: 10.1080/1331677X.2022.2147977

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