STOCK MARKET SENSITIVITY TO MARKET RISK: AN EMPIRICAL ANALYSIS USING CONDITIONAL BETA IN PAKISTAN

Abstract

In order to find the impact of conditional beta on Pakistan stock exchange we establish some research questions. The data used in the research is taken from Pakistan stock exchange, State bank of Pakistan and other different sources like www.opendoor.com etc. The data was collected on daily base from year 2004 to 2014. The model used in the research is SLB model used by Pettengill, Sundaram, and Mathur (1995). Study found an insignificant relation between beta and stock return in up market and in down market. Study found significant result with negative sign which mean negative relation. In the total sample we have significant relation with positive sign. This study uses CAPM model in negative market condition, which is showing efficient result according to the theory.  Study concluded that in negative market condition risk is negatively related to return, and beta is the measure of market return. This study focused only on Pakistan further studies should be made keeping in view the limitations. Develop and stable economies should have a great research gaps which should be filled by relating the existing studies to other field like corporate governance role and also in cost of capital. Furthermore, comparison and comparative studies must need to be done in this field.