ISSN 2736-1721
Global Journal of Business Management ISSN 6731-4538 Vol. 5 (6), pp. 001-011, June, 2011. © International Scholars Journals
Full Length Research Paper
Do economic factors influence stock returns? A firm and industry level analysis
Babar Zaheer Butt1*, Kashif Ur Rehman2, M. Aslam Khan3 and Nadeem Safwan1
1Foundation University, Islamabad, Pakistan.
2Iqra University, Islamabad, Pakistan.
3Preston University, Islamabad, Pakistan.
Accepted 17 March, 2019
Abstract
The objective of this study is to examine the stock returns variation to specific economic variables by applying a multi-factor model. The firms relating to banking and textile sectors were selected for this study on the basis of data availability, profitability and performance on the Karachi Stock Exchange. The data for the selected firms and economic variables obtained for the period of 10 years. GARCH model used to analyze risk and returns relationship. The tests applied on the stock returns of each firm and on the data set of the entire industry to generalize the results. The results disclose that market return is mainly accounts variation in stock returns, however the inclusion of other macroeconomic and industry related variables has added additional explanatory power in describing the stock returns variation. It is found that economic exposure is higher at industry level than firm level stock returns. Results also indicate that stock returns of different firms behave differently in similar economic conditions that acquaint investors about the risk diversification opportunity in the stock market.
Key words: Stock returns, multifactor model, macroeconomic variables.