Abstract
This study examines the effect of asset growth premium on future stock
returns using data of 285 firms listed on Karachi Stock Exchange using the
Fama Macbeth methodology (1973) also known as two pass test. We applied
both the one pass and two pass regression on single factor model and two factor
model. The validity of CAPM is checked and is not considered as appropriate in
Pakistani stock market. After the incompetence of CAPM, Asset Growth
Premium is added to the single factor to check the predicting ability of the new
two factor model i.e. market premium plus asset growth premium. Adding asset
growth premium to the model enhances the ability of the model to predict future
portfolio returns. Our results further suggest that, asset growth premium is a
priced variable in determining the future returns and can be used by the
investors for strategic decision making.
Syeda Faiza Urooj, Dr. Syed Muhammad Aamir Shah. (2016) Is Asset Growth Priced?, Abasyn Journal of Social Sciences, Volume-09, Issue-2.
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