Despite the strong growing popularity of Asset Pricing Models, it is difficult to estimate which factor contributes significantly in explaining average excess portfolio returns particularly in emerging equity market. Using an extensive sample over Jan-1994-Dec-2020 period, this paper aims to extend the literature by augmenting Tobin-Q adjusted risk premium with various unconditional standard asset pricing models which seeks to postulate the nexus between expected portfolios stock returns and risk-factors using monthly data of 521 enlisted financial and non-financial firms from Pakistan Stock Exchange. The multiple time-series OLS regression analysis models are employed to analyze Tobin-q risk-factor augmented with various factors models. Fama and French (2015) five-factor model excessively explains average equity returns however, our results reveal that size, value, profitability and particularly Tobin-q factor are significant while market and investment factor are redundant in Pakistan Stock Exchange. The momentum factor shows weak results in describing average equity returns in the market. Based on Gibbons, Ross and Shanken (1989) test, our findings support Tobin-Q augmented Fama and French (2015) five-factor model as appropriate for pricing stocks returns in emerging market of Pakistan. The investors, portfolio managers and policy-makers should assume the Tobin-q factor while constructing diversified portfolios for investments in Pakistan Stock Exchange
Liquidity is one of the intricate phenomena that cannot be assessed in a single dimension due to its multidimensional structure, which is still contentious among researchers and must be explored from several perspectives. This study thus analyses the multidimensional liquidity as mediating variable to empirically investigate whether liquidity influence the nexus between risk-premiums and portfolio stock returns using Structural Equation Modeling. Using liquidity as factor is employed using time-series OLS regression technique. The sample used in this study comprised of monthly returns of 286 non-financial firms enlisted on PSX for time span from January 2006 through June 2022. The findings of the study reveal that liquidity as mediating variable performs statistically highly significant while as independent risk-factor also performs statistically highly significant using Fama and French (2015) five-factor model. The market risk-premium exhibits statistically insignificant results for PSX while size, profitability and investment also show significant findings in the market. The potential investors and portfolio managers need to consider liquidity as benchmark criteria prior to make decision regarding investing in PSX.
Purpose- The basic purpose of the study is to examine whether Tobin-q, liquidity and momentum risk-premium contributes the explanatory power in terms of explaining portfolio returns in PSX. Design/Methodology- The Weighted Least Square (WLS) regression technique is empirically used to examine the nexus between risk-factor and portfolio returns using PSX dataset. The models provide useful tools for making efficient strategies in the jurisdiction of investments and portfolio constructions. Findings- The study reveals that multidimensional liquidity exhibits weak significant results while Tobin-q and momentum risk-factors demonstrate statistically significant determinants for PSX. Furthermore, WLS regression produces robust coefficient results than OLS regression as except liquidity all the factors exhibit substantially improved results. Practical Implications- The study findings would be useful for stocks and portfolio managers constructing optimal and diversified portfolios while investing in PSX.
The risk-free rates are widely used as benchmark to measure excess stocks returns or excess market returns and contribute a significant role in Asset Pricing Models. The purpose of this study is to scrutinize the risk and real excess portfolio returns using inflation adjusted risk-free rates, a unique measuring technique with a primary focus on the momentum augmented Fama-French five-factor model, utilising monthly data for 1994-2022 from the Pakistan Stock Exchange. Using OLS regression technique, the findings reveal that except profitability, the market, size, value, momentum and investment move largely correlated with excess portfolio stocks returns. The Gibbons, Ross & Shanken test confirms that the momentum augmented Fama-French five-factor model outperforms in the market.
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