Testing asset pricing models on the Pakistan Stock ExchangeKiran Lohano and Muhammad Kashif
First published: 1 March 2019
This study investigates the performance of CAPM, three-factor and ﬁve-factor asset pricing models on the Pakistan Stock Exchange using monthly data of 896 companies from November 2000 to December 2016. The results from the time-series approach show that the three-factor model performs relatively better than the CAPM and the ﬁve-factor model, whereas the cross-sectional approach establishes the superiority of the ﬁve-factor model. It can thus be concluded that it is important to incorporate factors, such as size, value, profitability and investment when predicting returns on securities in the Pakistan Stock Exchange.
Keywords: CAPM. Three-factor model. Five-factor model. Portfolio. Pakistan Stock Exchange