Muhammad ShahbazFollow

Degree

Master of Science in Finance

Department

Department of Finance

School

School of Business Studies (SBS)

Date of Submission

Spring 2024

Supervisor

Dr. Hilal Anwar Butt, Professor and Chairperson, Department of Finance

Submission Type

Research Project

Document Type

Restricted Access

Pages

vii, 31

Keywords

Probability of Negative Returns, PNR, Downside Risk, PSX Listed Companies

Abstract

The purpose of this research is to examine the impact of Probability of Negative Returns on future equity returns of Pakistan Stock Market. The study includes the monthly data over the period from 2009 to 2023, comprising of 490 listed companies on the (Pakistan Stock Exchange). The probability of negative returns is calculated from the daily returns of each stock. Regression analysis, employing the Capital Asset Pricing Model (CAPM), Fama & French (1993) 3-factor model, and Fama & MacBeth, (1973) regression, has been conducted to ascertain the relationship between the probability of negative returns of stocks and their future returns. This study examines the impact of the Probability of Negative Returns (PNR) as a measure of downside risk on future returns within the Pakistan Stock Market. The results demonstrate that a negative and statistically significant relationship exists between PNR and future returns at the portfolio level. However, Fama & MacBeth (1973) regression indicates a negative but statistically insignificant relationship between PNR and future returns of the stock. Furthermore, CAPM single factor and Fama & French (1993) 3 factor models (FF-3) are performed to assess the impacts of PNR on future returns when controlled with market risk factors. CAPM and FF-3 demonstrates that stocks with a lowest probability of negative returns yield 2.8% and 1.6% additional monthly returns than stocks in highest probability of negative returns in equally weighted portfolios.

Download

The full text of this document is only accessible to authorized users.

Share

COinS