Multiscale systematic risk: Empirical Evidence from Pakistan

Shahzad, Syed Jawad Hussain and Zakaria, Muhammad and Raza, Naveed and Ali, Sajid (2014): Multiscale systematic risk: Empirical Evidence from Pakistan.

Abstract

This study utilizes the wavelet approach namely Maximal Overlap Discrete Wavelet Transform (MODWT) to examine the multiscale risk-return relationship for Pakistan stock market. The method enables scale-by-scale analysis of CAPM validity and heterogeneous market expectations. Our sample consists of 117 firms listed at Karachi stock exchange for the period January 1, 2006 to December 31, 2013. The empirical findings show that the risk-return relationship is linear at higher (16-128 days) scales and average daily market risk premium is 23.8%. The study, consistent with literature, concludes that systematic risk is a multiscale phenomenon.

• Item Type: MPRA Paper
• Language: English
• Keywords: CAPM, Multiscale systematic risk, Pakistan
• Subjects: G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; Capacity

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