Abstract
The paper examines the relationship of economic and financial variables with behavior of stock returns in ten industrial sectors of KSE using monthly data. An Arbitrage Pricing Model is estimated in which the risk premia vary in proportion to the conditional volatilities of the macroeconomic and financial innovations which follow an autoregressive specification and exhibit strong time-variation from month to month. To overcome the generated-regressor problem the methodology of Koutoulas and Kryzanowski (1996) has been followed with some modifications. Each model is estimated by using nonlinear seemingly unrelated regression technique. The study indicates that unanticipated realizations of economic and financial variables are significant determinants of movements in stock returns. The results also imply that the predictable volatility in economic and financial factors in general has an insignificant effect on risk premium.
Article Details
- Year: 2007
- Volume: 28
- Issue: 2
- Accepted: 01.03.2007
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How to Cite?
Hajra Ihsan, Eatzaz Ahmad, Muhammad Ihsan ul Haq, Haleema Sadia (2007). Relationship Of Economic And Financial Variables With Behavior Of Stock Returns. Journal of Economic Cooperation and Development, 28(2), -.
