Pricing of foreign exchange risk and market segmentation: evidence from Pakistan's equity market

Author(s)

Sara Azher, University of Karachi
Javed Iqbal, Institute of Business Administration, KarachiFollow

Author Affiliation

Javed Iqbal is Associate Professor at Institute of Business Administration (IBA), Karachi

Faculty / School

Faculty of Computer Sciences (FCS)

Department

Department of Mathematical Sciences

Was this content written or created while at IBA?

Yes

Document Type

Article

Source Publication

Journal of Asian Economics

ISSN

1049-0078

Keywords

Emerging markets, F31, Foreign exchange risk, G15, G19, Market segmentation, Multi beta asset pricing models

Disciplines

Econometrics | Economics | Finance

Abstract

This paper undertakes empirical analysis to investigate whether foreign exchange rate risk is priced, and the extent to which the Pakistani equity market is integrated into world equity markets. For the period January 1993-January 2013, we investigate unconditional pricing using the iterated generalized method of moments, employing industry and size portfolios formed from 180 firms traded on the Karachi Stock Exchange. Using the multi beta asset pricing model, we find that exchange risk is priced into the Pakistani equity market over the full sample period. Moreover, we find strong evidence that the Pakistani equity market is segmented from world markets, especially in the post 9/11 period.

Indexing Information

HJRS - W Category, Scopus, Web of Science - Social Sciences Citation Index (SSCI)

Journal Quality Ranking

Impact Factor: 2.159