All Theses and Dissertations


Master of Science in Economics

Faculty / School

Faculty of Business Administration (FBA)


Department of Economics

Date of Award

Spring 2019


Dr. Hilal Anwar Butt

Committee Member 1

Dr. Hilal Anwar Butt, Institute of Business Administration, Karachi

Project Type


Access Type

Restricted Access


ix, 52


This study explores the stock market anomalies in Pakistan Stock Exchange (PSX). The theory of Efficient Market Hypothesis (EMH) states that security prices refect all available information. Therefore, using prior information is useless in predicting security prices and earn risk adjusted returns. Moreover, higher returns are compensation for taking higher risk. However, previous evidence shows that excess returns are not justified by the theory of EMH. Using stock level data from 1991 until 2018, 25 zero-cost (long/short) investment strategies are formed based on rm`s characteristics in order to search for any cross-sectional returns variations. Moreover, if the returns of zero-cost strategies are statistically and economically significant, then under EMH these variation are compensation for being exposed to systematic risk factors. To establish the link between risk and return, this study uses standard asset pricing models. If risk and return relationship do not hold then investors can exploit such miss-pricing signals in order to earn anomalous returns. In addition, his study also investigates the conditional performance of zero-cost investment strategies. For this purpose, three market wide conditional measures are used i.e (1) market returns are used to test the performance in bear and bull states, (2) market liquidity is used to test the performance in liquid and liquidity market conditions and (3) market volatility is used to test the performance in high volatile and low volatile states. Results indicates that PSX is not completely efficient as out of 25 strategies, 15 strategies have significant returns differentials which are not explained by the asset pricing models. However, the performance of these strategies are state dependent. The findings of this study are useful for investors in order to optimally use their resources and to time their investments efficiently.

JEL Codes: A12, G10, G11, G12, G14, G15, G17

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