INVESTING THE PRICING OF EXCHANGE RATE RISK IN THE STOCK MARKET: EVIDENCE FROM PAKISTAN STOCK MARKET
Download| Volume 12 Issue 2 2016 | |
|---|---|
| Author(s): |
Muhammad Tariq
Dr. Alam Raza
Azizullah
Ghulam Mustafa Shaikh
|
| Abstract | This paper is designed to empirically examine the pricing of exchange rate risk in the stock market in Pakistan. The study is based on two-factor and multi-factor arbitrage pricing models. The empirical evidence is based on 15 years of monthly data from January 1998 to December 2015, for the exchange rate, discount rate, inflation, t bill and the Karachi Stock Exchange (KSE) 100 indexes are collected from State Bank of Pakistan and Karachi Stock Exchange. The results, however, conclude that the exchange rate risk is priced in the stock market. Whereas, the remaining factors such as risk premium attached to foreign currency exposure and the term structure of discount rate appear to have a significant effect on exchange rate risk. We can generalize that the exchange market in Pakistan is influenced by the stock market. This paper provides empirical evidence that the risk exposure of the exchange rate is largely influenced by the changes in the stock market. Therefore the concerned persons are proposed for the consideration of this issue. |
| Keywords | : Exchange Rate Risk, Multi-Factor Arbitrage Pricing Models, Stock Market, Risk Premium. |
| Year | 2016 |
| Volume | 12 |
| Issue | 2 |
| Type | Full Length Paper |
| Recognized by | Higher Education Commission of Pakistan, HEC | Category | "Y" | Journal Name | IBT Journal of Business Studies | Publisher Name | ILMA University | Jel Classification | - | DOI | http://dx.doi.org/10.46745/ilma.jbs.2016.12.02.06 | ISSN no (E, Electronic) | 2409-6520 | ISSN no (P, Print) | 2416-8393 | Country | Pakistan | City | Karachi | Institution Type | University | Journal Type | Open Access | Manuscript Processing | Blind Peer Reviewed | Format | Paper Link | http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/12.2/6.pdf | Page | 87-102 |