Financial leverage and stock returns: evidence from an emerging economy
Journal Title: Economic Research-Ekonomska Istraživanja - Year 2016, Vol 29, Issue 1
Abstract
The aim of this research was to examine the propositions of Campbell et al. and Mirza et al. on pricing of leverage in stock returns using a comprehensive set of firms listed on the Karachi Stock Exchange (KSE) over a period of 13 years. Our results suggest that while size, value and, more importantly, financial leverage are systematic in nature, market risk premium is not a relevant factor. The results confirm the notion of leverage premium and have important implications for financial managers, investment analysts and other market participants who use asset pricing frameworks for investment appraisals. These findings have global relevance, notably for other emerging and developing economies where default risk is of importance due to cyclical nature of cash flows and low recovery rates owing to weaknesses of legal structure.
Authors and Affiliations
Mirza Nawazish, Birjees Rahat, Krishna Reddy
Keywords
Related Articles
- EP ID EP201522
- DOI 10.1080/1331677X.2016.1160792
- Views 57
- Downloads 0
Exploring fitness centre consumer loyalty: differences of non-profit and low-cost business models in Spain
A number of studies have placed at the forefront variables that predict the loyalty of clients in fitness centres. In fact, no study has analysed the differences between these variables according to business models. The...
The application of water cycle algorithm to portfolio selection
Portfolio selection is one of the most vital financial problems in literature. The studied problem is a nonlinear multi-objective problem which has been solved by a variety of heuristic and metaheuristic techniques. In t...
Dynamic immunisation does not imply cash flow matching: a hard application to Spain
Immunisation is not a static strategy as the literature affirms: we argue that the conditions established for reaching immunisation are unbalanced in themselves as times go on. This paper presents a valid, comprehensive...
The influence of corporate governance on bank risk during a financial crisis
Using agency theory, we explore the relationship between corporate governance mechanisms and bank risk. We employ panel data analysis to study the 97 largest European listed banks between 2006 and 2010, thereby covering...
The limitations of competition in the insurance markets of Slovenia, Croatia and Serbia
The article analyses the situation in the insurance markets of Slovenia, Croatia, and Serbia in order to provide the insight into the limitation of competition. The study of the limitation of competition was conducted us...