An Empirical Study of Firm Financial Position on its Risk and Return A case study of Karachi Stock Exchange

SUBMITTED BY: Muhammad Umar (060021) ZAIGHUM TANVEER (060035)

A Thesis Submitted In Partial Fulfillment of the Requirements for the Degree of BBA (HONS) Department of Business Administration Faculty of Administrative Sciences Air University 2010

Final Project Approval Sheet Topic of Research: An empirical Study of Firm Financial Position on its Risk and Return. Names of Student: Muhammad Umar Reg No: 060021 Names of Student: Zaighum Tanveer Reg No: 060035 Program: BBA-S-06-A-47

Approved by:

Project Supervisor

Internal Examiner

Internal Examiner

Dean

Acknowledgment
This thesis has been the result of research conducted during spring of 2009 within the division of the Department of Management Sciences at Air University, Islamabad. All the praise is for Allah, the most merciful and beneficent, who blessed us with the knowledge, gave us the courage and allowed us to accomplish this research. We gratefully acknowledge Mr.Farooq Rasheed for his supervision, advice and crucial contribution which made him a backbone to this thesis. His involvement with his originality has triggered and nourished our intellectual maturity that we will benefit from, for a long time to come. It is also our immense pleasure to express sincere gratitude to Dr.I U Shad and Mr.Saeed Chodhary whose inspiring guidance, remarkable suggestion, keen interest and constructive criticism helped us to complete this research efficiently. We found this research interesting, challenging and most of all rewarding. We hope the report is informative to anyone who refers to it. Thanking all the reader(s).

Muhammad Umar Zaighum Tanveer

Dedication
We dedicate this research to our parents and teachers, who taught us to think, understand and express. We earnestly feel that without their inspiration, able guidance and dedication, we would not be able to pass through the tiring process of this research.

ABSTARCT This study examines the return based performance of the companies of financial sector of Pakistan in stock market from 1st July 2005 to 30th June 2009. The analysis is done by the construction of one portfolio consisting of 10 stocks of companies relating to financial sector of different sector of Karachi Stock Exchange. The risky ness of each stock of financial sector is measured to analyze whether small cap stocks of financial sector of Pakistan are more volatile or not as compare to large cap stocks. This is done by the construction of a manager universe benchmark and volatility of each stock from its benchmark is analyzed. The analysis is done using non parametric method, which is much more efficient than parametric method when distributions are not normal. For this analysis of variation, various tools are used including ANOVA Test under MET, Test of sources of variation and the Test of descriptive statistics. The ANOVA Test is based on the comparison of mean returns and the risk associated with these returns. The results of all the tests have shown that stocks of small capitalization category have more fluctuation in returns as compared to stocks of large capitalization category confirming that small cap stocks are more risky as compared to large cap stocks. In the end, policy recommendations for investments are also provided to the investors regarding their investments decisions in financial stocks based on their ability and willingness to take risk.

Table of Contents
ABSTRACT CHAPTER ONE 1 INTRODUCTION Background .1 Stock Market Review...2 Purpose of Study...9 Significance of Study ..10

CHAPTER TWO .11 LITERATURE REVIEW Hypothesis 20

CHAPTER THREE...21 DATA & METHODOLOGY Research Procedure21

CHAPTER FOUR .26 RESULTS Common Effect ..26 Fixed Effect 27 Random Effect ....29 Test for Equality of Means .32 Correlation ..38

CHAPTER FIVE .64 CONCLUSION AND RECOMMENDATION Conclusion ...64 Recommendation .65

REFERENCES 67

CHAPTER I
INTRODUCTION

The purpose of this study is to investigate the relationship between firms financial position and its risk and return and how risk affect return in portfolio choices. 1.1 Background: Modern finance theory started from Markowitzs (1952) portfolio theory, which predicts how individual investor allocates their assets by balancing the risk and return tradeoffs. Based on this theory, Sharpes (1963), Lintner (1965) and Black (1965) developed the so called capital Asset Pricing Model (CAPM). For the first time their theory clearly prescribes that it are the individual stocks co-movements with the overall market variables that determine stocks expected returns (thus the stock prices) postulating a simple linear relationship between a stocks expected price/ return and its risk? The CAPM has been under intensive scrutiny since birth. Early empirical studies generally failed to reject the model. However in recent years one of the most influential papers by Fama and French (1992) questioned the cross-sectional predictability of the CAPM. Current evidence has shown that other factors have a consistent and significance effect on common stock prices and return. Despite the heated debate the CAPM still receives wide attention especially from the practitioners. At the same time for good or bad we have at least learned that there might be multiple other factors in determining the asset prices. The association between size and average stock price is about as important as the association between risk and average returns. Thus it is not surprising that there ha seen immense growth in the papers investigating size effect and other empirical regularities in average stock prices.

The size effect one of the most enigmatic finding in finance first reported by Banz (1981), seems to provide strong evidence that the shares of firms with small equity market values have on average higher stock prices than firm with large equity market values. The apparent persistence of this effect is such that it has been accorded the status of an anomaly. Like many emerging markets the Indian capital market also suffers from unsatisfactory corporate governance, dubious accounting practice, market manipulation, and insider trading problems. Most investor has traded speculatively with very short holding period. The turnover ratio of stocks at NSE has been very high, showing that investor were interested more in short gains and ignored long term investment objectives based on future profitability of a firm. Such a unique investment environment provides a natural laboratory to study the securities price issue and its relationship to firms size and to know whether there is a size effect using Indian stock data. 1.2 Stock market review A stock (also known as equity or a share) is a portion of the ownership of a corporation. . It represents a claim on the company's assets and earnings. A share in a corporation gives the owner of the stock a stake in the company and its profits. Important features of the stock is its limited liability, which means that, as an owner of a stock, one is not personally liable if the company is not able to pay its debt. Owning stocks means that, no matter what the maximum one can loose is the value of his investment. A market is mechanism by which buyers and sellers interact to determine the price and quantity of goods or services. A stock exchange, securities exchange is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. Stock exchanges also provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. The

securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. Usually there is a central location at least for recordkeeping, but trade is less and less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of speed and cost of transactions. Trade on an exchange is by members only. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets is driven by various factors which, as in all free markets, affect the price of stocks. There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for securities. The size of the world stock market is estimated at about $36.6 trillion US at the beginning of October 2008. The world derivatives market has been estimated at about $480 trillion face or nominal value, 12 times the size of the entire world economy. Historian Fernand Braudel suggests that in Cairo in the 11th century, Muslim and Jewish merchants had already set up every form of trade association and had knowledge of many methods of credit and payment, disproving the belief that these were originally invented later by Italians. In 12th century France the courratiers de change were concerned with managing and regulating the debts of agricultural communities on behalf of the banks. Because these men also traded with debts, they could be called the first brokers. A common misbelieve is that in late 13th century Bruges commodity traders gathered inside the house of a man called Van der Beurze, and in 1309 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings occurred; the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary place for trading. The idea quickly spread around Flanders and neighboring counties and "Beurzen" soon opened in Ghent and Amsterdam.

In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the Venetian government outlawed spreading rumors intended to lower the price of government funds. Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the 14th century. This was only possible because these were independent city states not ruled by a duke but a council of influential citizens. The Dutch later started joint stock companies, which let shareholders invest in business ventures and get a share of their profits - or losses. In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company to issue stocks and bonds. The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been the first stock exchange to introduce continuous trade in the early 17th century. The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant banking, unit trusts and other speculative instruments, much as we know them. There are now stock markets in virtually every developed and most developing economies, with the world's biggest markets being in the United States, Canada, China (Hongkong), India, UK, Germany, France and Japan. 1.2.1 Karachi Stock Exchange The Karachi Stock Exchange or KSE is a stock exchange located in Karachi, Pakistan. Founded in 1947, it is Pakistan's largest and oldest stock exchange, with many Pakistani as well as overseas listings. Karachi Stock Exchange is the biggest and most liquid exchange and has been declared as the Best Performing Stock Market of the World for the year 2002. As on December 31, 2008, 653 companies were listed with the market capitalization of Rs.1, 858,698.90 billion (US $ 23,527.83 billion) having listed capital of Rs.750.48 billion (US $ 9.50 billion). The KSE 100 Index closed at 5865.01 on December 31, 2008. KSE has been well into the 4th year of being one of the Best Performing Markets of the world as declared by the international magazine Business Week. Similarly the

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US newspaper, USA Today, termed Karachi Stock Exchange as one of the best performing bourses in the world. The exchange has pre-market sessions from 09:15am to 09:30am and normal trading sessions from 09:30am to 03:30pm. It is the second oldest stock exchange in South Asia. Today KSE has emerged as the key institution of the capital formation in Pakistan with:i. Listed companies 653, securities listed on the exchange 692: ordinary share 653, Preference shares 14 and debt securities (TFC's) 25. ii. iii. iv. v. vi. vii. viii. ix. x. Listed capital Rs.750, 477.55 million (US$ 9,499.72 million). Market capitalization Rs.1, 858,698.90 million (US$ 23,527.83 million). Average daily turnover 146.55 million shares with average daily trade value Rs.14, 228.35 million (US$ 180.11 million). Membership strength at 200. Corporate Members are 187 out of which 9 are public listed companies. Active Members are 163. Fully automated trading system with T+2 settlement cycle. Deliveries through central depository company. National Clearing and Settlement System in place.

KSE began with a 50 shares index. As the market grew a representative index was needed. On November 1, 1991 the KSE-100 was introduced and remains to this date the most generally accepted measure of the Exchange. The KSE-100 is a capital weighted index and consists of 100 companies representing about 86 percent of market capitalization of the Exchange.

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In 1995 the need was felt for an all share index to reconfirm the KSE-100 and also to provide the basis of index trading in future. On August 29, 1995 the KSE all share index was constructed and introduced on September 18, 1995. KSE has also introduced KSE-30 Index which is calculated using "Free Float Market Capitalization Methodology". The primary objective of the KSE 30 Index is to have a bench mark by which the stock price performance can be compared to over a period of time. In particular, the KSE-30 Index is designed to provide investors with a sense of how large company's scrip's of the Pakistan's equity market are performing The stock market is one of the most important sources for companies to raise money. This allows businesses to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an exchange provides affords investors the ability to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as real estate. History has shown that the price of shares and other assets is an important part of the dynamics of economic activity, and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to be an up coming economy. In fact, the stock market is often considered the primary indicator of a country's economic strength and development. Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the control and behavior of the stock market and, in general, on the smooth operation of financial system functions. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that the counterparty could default on the transaction.

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The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks promote the production of goods and services as well as employment. In this way the financial system contributes to increased prosperity. Stock exchanges have multiple roles in the economy, this may include the following: 1 Raising capital for businesses The Stock Exchange provides companies with the facility to raise capital for expansion through selling shares to the investing public. 2 Mobilizing savings for investment When people draw their savings and invest in shares, it leads to a more rational allocation of resources because funds, which could have been consumed, or kept in idle deposits with banks, are mobilized and redirected to promote business activity with benefits for several economic sectors such as commerce and industry, resulting in stronger economic growth and higher productivity levels and firms. 3 Facilitating company growth Companies view acquisitions as an opportunity to expand product lines, increase distribution channels, hedge against volatility, increase its market share, or acquire other necessary business assets. 4 Redistribution of wealth Stocks exchanges do not exist to redistribute wealth. However, both casual and professional stock investors, through dividends and stock price increases that may result in capital gains, will share in the wealth of profitable businesses. 5 Corporate governance By having a wide and varied scope of owners, companies generally tend to improve on their management standards and efficiency in order to satisfy the demands of these shareholders and the more stringent rules for public corporations imposed by public

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stock exchanges and the government. Consequently, it is alleged that public companies (companies that are owned by shareholders who are members of the general public and trade shares on public exchanges) tend to have better management records than privately-held companies (those companies where shares are not publicly traded, often owned by the company founders and/or their families and heirs, or otherwise by a small group of investors). However, some well-documented cases are known where it is alleged that there has been considerable slippage in corporate governance on the part of some public companies. The dot-com bubble in the early 2000s, and the subprime mortgage crisis in 2007-08, is classical examples of corporate mismanagement. Companies like Pets.com (2000) 6 Creating investment opportunities for small investors As opposed to other businesses that require huge capital outlay, investing in shares is open to both the large and small stock investors because a person buys the number of shares they can afford. Therefore the Stock Exchange provides the opportunity for small investors to own shares of the same companies as large investors. 7 Government capital-raising for development projects Governments at various levels may decide to borrow money in order to finance infrastructure projects such as sewage and water treatment works or housing estates by selling another category of securities known as bonds. These bonds can be raised through the Stock Exchange whereby members of the public buy them, thus loaning money to the government. 8 Barometer of the economy At the stock exchange, share prices rise and fall depending, largely, on market forces. Share prices tend to rise or remain stable when companies and the economy in general show signs of stability and growth. An economic recession, depression, or financial crisis could eventually lead to a stock market crash. Therefore the movement of share prices and in general of the stock indexes can be an indicator of the general trend in the economy.

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1.3 Purpose of Study Risk concerns the expected value of one or more results of one or more future events. Technically, the value of those results may be positive or negative. However, general usage tends focus only on potential harm that may arise from a future event, which may accrue either from incurring a cost ("downside risk") or by failing to attain some benefit ("upside risk"). Financial risk is normally any risk associated with any form of financing. Risk is probability of unfavorable condition; in financial sector it is the probability of actual return being less than expected return. There will be uncertainty in every business; the level of uncertainty present is called risk. Depending on the nature of the investment, the type of 'investment' risk will vary. High risk investments have greater potential rewards, but also have greater potential consequences. A common concern with any investment is that the initial amount invested may be lost (also known as "the capital"). This risk is therefore often referred to as capital risk. Many forms of investment may not be readily salable on the open market (e.g. commercial property) or the market has a small capacity and may therefore take time to sell. Assets that are easily sold are termed liquid: therefore this type of risk is termed liquidity risk. In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage rather than a fraction. The main purpose of the study is to investigate that is there any relationship between firms financial position and its risk and return and how risk affects return in portfolioc choices.

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1.4 Significance of study Size effect on stock prices represents an unusual coincidence of interest among the broad group of financial economist. One of the most enigmatic empirical finding in the finance is the size effect first reported by Banz which seems to provide strong evidence that the shares of the firm with small equity market values have on average higher stock prices and returns than firms with large equity market values. The apparent persistence of this effect is such that it has been accorded the status of anomaly.

The rest of the thesis is organized as follows In Chapter II Literature Review In Chapter III Data Methodology In Chapter IV Results In Chapter V Conclusion and Recommendations

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CHAPTER II
LITERATURE REVIEW Imperial research over past years has provided evidence of the cross sectional relationship between stock prices and certain fundamental variables being studied extensively. In general, a positive relationship has been found between stock prices and earning yields, cash flows yield and book to market ratio and size. Specially, voluminous are the studied that document the size and prices effects and studies that try to descent angle the two effects. Basu (1977) finds that price earning ratios and risk adjusted returns are related , a study perform by Letzemberger and Ramaswomy (1979) shows a significant positive relationship between dividend yield and prices on common stocks. The existence of the size effects some specific implication for both the CAPM and the efficient market hypothesis. CAPM assumes that expected return from an asset is a function of its price variance. This figure is usually reported as beta and is synonymous with risk. This relationship is thought to be linear and positive, hence the adage high high risk, high returns. Several assumptions were made by Sharp. (1964), Lintner (1965) and moss in (1966) when they developed CAPM. First they assumed investors portfolio will maintain a constant proportion between risky and risk free asset. The second assumption is that all investors can lend or borrow money at the risk free rate. A more establish theory known as the efficient market hypothesis also conflict with the Banzs (1981). A capital market is said to be efficient if it fully correctly reflects all relevant information in determining security prices. Thus it is impossible to make economic profit by trading on the basis of such information. This is implied because people are assumed to be rational. An indication of abnormally high profit well attract investors and increase the demand for that security. In turn the price for that security will increase eliminating access profits. Since the size of the company is public information buying stocks on the basis of firm size should not lead to higher prices. However, Banzs study indicates other wise. Banzs several approaches to testing this size effect. One in particular seems to eliminate most econometric problems and yield

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the most reliable results. First the companies are split into five portfolios depending on size. Banzs significant and negative parameters for size, thus indicating that firms with large market values have smaller results than small firms with comparable beta figures. A number of papers have analyzes the statistical tests in the papers of Benz &Reinganum (1981). In particular Roll (1981) suggests that the stocks of small firms are traded less frequently than the stocks of large firm so the estimates of risks from stock prices will be biased downward. Christie & Hertzel (1981) argue that the size effect could be due to non stationary in risk measures. The risk of a stock of levered firm increases and the sock price decreases. Historical estimates that assume risk is constant over time, understate the risk of levered stocks whose prices has fallen; and thus average returns for stocks with low current value should be positive because risk is underestimated. Still, adjusting for bias in risk estimates does not discount the size effect. Roll (1982) and Blume &Stambaugh (1983) examine the effects of the different portfolio strategies implicit in alternative estimators of prices to portfolios of firms stocks depending on the market equity. Since the magnitude of the size effect is apparently sensitive to the technique used to calculate current value (price) both Roll and Blume & Stamaugh question the empirical importance of this phenomenon. In sum, several papers have attempted to explain the results of Banz & Reinganum. Basu (1983) re-examines Reinganums results using a different sample period and a different procedure for creating portfolios of stocks ranked on both size and E/P ratios. He found that prices of stocks of firms with low market values are riskier than larger firms stocks. Basu contradicts Reinganum and finds that both the size and the E/P effect are indications of deficiencies in the CAPM, not a sign of market inefficiency. Keim (1983) and Brown, Keidon & Marsh (1983) provide new evidence to the time series behavior of the size effect. Keim notes that the average price of a portfolio of small firms stocks is large in January and much smaller for rest of the year. About half of the annual size effect occurs in January and about 25% during the first five

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days of trading of January. Keim finds that size effect exhibits seasonality. Brown, Kleidon &Marsh examine the behaviors of the size effects over time, using data from different sample periods, thus speculate about the type of explanations that are consistent with a time varying size effect. Several papers examine the January size effect using international data. The size effect has also been identified empirically for the UK by Levis (1985&1989) and Fong (1993). Brown Keim, Kleidon & Marsh analyze the prices of Australian stocks, since the typical fiscal year end for tax purposes in June 30 in Australia. Other papers that examine the relation between firm size, tax-loss selling and seasonality in stock prices include Gultekin & Gultekin (1982) who examine prices of Toronto and Montreal stock exchanges and find higher average prices in January especially for small stocks. However, this phenomenon seems to exist both before and after 1972, when Canada imposed the capital gains tax. Thus they concur that the tax effect does not fully explain the size effect. Fama and French(1992) argued that size play a dominant role in explaining cross sectional differences in expected prices and returns from firms and they proposed an alternative model that includes apart from market factor, a factor related to size and a factor related to B/M(Book value/Market value) Lakonishok, Schleifer, and Vishny (1994) suggest that the high prices associated with high market equity stocks are generated by investors who incorrectly extrapolate the past earning growth rates of firms. They suggest that investors are overly optimistic about firms, which have done well in the past and overly pessimistic about those that have done poorly. Lakonishok, Schleifer, and Vishny also suggest that high market equity stocks are more glamorous then low market equity stocks and may thus attract nave investors who push up prices and raise the expected returns of these securities. In other words NSV find evidence that values stregies higher prices not because fundamentally riskier, But because these straggles explode the sub optimal behaviors of the typical investors. The LSV story also supported by cai (1997) and cahangy, Mcleavey and Rhee (1995) for Japan and by Gregory, harris, and moich (2003) for the UK.

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Knez and Ready (1997) used the Robest Fama and Macbeth (1973) procedure in order to postulate the influential to help to uncover why size and market worth appear to be useful for explaining cross sectional variation and prices and returns. They find that the risk premium of size that was estimated by Fama and French completely disappear when the one percent most extreme observations are tempt each month. finally they argued that further investigation are these result could lead to end and understanding of economic forces underplaying the size effect and may also yield important inside into how firms growth. On the other hand, Daniel and Titmen, (1997) find evidence that the return premium on small capitalization and high book-to-market stocks does not arise because of the co-movements of these stocks with pervasive factors. It is the characteristic rather then the covariance structure (risk) of returns that appear to explain the cross sectional variation in stock prices and return. Lew and Bassalou (2000) provides that firm size and market equity are related to future economic growth , furthermore, Vassalou shows that much of the ability of size and equity to explain asset is due to news related to future gross domestic product growth. For developing capital markets in general and Pakistani markets in particular empirical evidence on equilibrium models are few. Khilji (1993) and Hussain and Uppal (1998) investigated the distributional characteristics of stock return in the Karachi Stock Exchange, concluding that the return behaviour cannot be adequately modeled by a normal distribution. Hussain (2000) found no evidence of the day of the week anomaly and concluded that for the period January 1989 to December 1993 the absence of this predictability pattern implied efficiency of the market. Ahmad and Zaman (2000) using sectoral monthly data from July 1992 to March 1997 found that some of the CAPM implications are valid in the Karachi Stock Market. They found evidence in favor of positive expected return for investors but speculative bubbles were also indicated. Khilji (1994) found that the majority of return series are characterized by non-linear dependence. Ahmad and Rosser (1995) used an ARCHin-Mean specification to study risk return relationship using sectoral indices. Attaullah (2001) tested APT in the Karachi Stock Exchange using 70 randomly

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selected stocks employing monthly data from April 1993 to December 1998. Out of 11 macroeconomic factors he found unexpected inflation, exchange rate, trade balance and world oil prices were sources of systematic risk. He used Iterative Non Linear Seemingly Unrelated Regressions technique. The present study provides more recent evidence from monthly data from January 1997 to December 2003. With a relatively greater sample this study employs two different factor analysis techniques and stability analysis is also performed. Moreover macroeconomic variables used are also greater in number and regional market indices are also included. Javid and Ahmed (2008) an attempt to empirically investigate the size and return (price) relationship of individual stocks traded at Karachi Stock Exchange (KSE), the main equity market in Pakistan. The analysis is based on daily as well as monthly data of 49 companies and KSE 100 index is used as market factor covering the period from July 1993 to December 2004. The natural starting point of this study is to test the adequacy of the standard Capital Asset Pricing Model (CAPM) of Sharpe (1964) and Lintner (1965). The empirical findings do not support the standard CAPM model as a model to explain assets pricing in Pakistani equity market. The critical condition of CAPMthat there is a positive trade-off between risk and returnis rejected and residual risk plays some role in pricing risky assets. This allows for the return distribution to vary over time. The empirical results of the conditional CAPM, with time variation in market risk and risk premium, are more supported by the KSE data, where lagged macroeconomic variables, mostly containing business cycle information, are used for conditioning information. The information set includes the first lag of the following business cycle variables: market return, call money rate, term structure, inflation rate, foreign exchange rate, growth in industrial production, growth in real consumption, and growth in oil prices. In a nutshell, the results confirm the hypothesis that risk premium is time-varying type in Pakistani stock market and it strengthens the notion that rational asset pricing is working, although inefficiencies are also present in unconditional and conditional settings. According to Clarkson, Guedes, Thompson (1996), this paper reexamines how risk return relationships are affected by investor uncertainty about the exact parameters of the joint rate of return distribution. In this the authors have, attempt to clarify results

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relating to three central issues. First, they address the issue of diversification, focusing on an APT, factor model framework. Second, they have discussed the observablity of estimation risk and describe research experimental designs that should encompass the existence of estimation risk and reveal it in the data. Finally, they suggested how exploiting contemporaneous return observations on high and low information securities to aid in the measurement of return parameters for low information securities. According to the analysis of Little (2008), Small cap stocks are risky because the economic changes or economic reversals have a great impact on smaller companies which usually do not have enough resources to survive during difficult time. It means that the chance of failure of small cap companies is more than large cap companies. On the other hand, there are various benefits associated with the investment in small cap stocks. The return of small cap stocks is higher than that of large cap stocks because of higher risk associated with these stocks due to higher fluctuations in the price. Small cap stocks are more nimble and react quickly to any market and technological changes. Huang (2004) analyzed cross country return correlations and conducted asset pricing test on three different size based portfolios over the stocks of nine different countries for the period of 1980 to 2004. He found that large cap stocks show significant comovement with across countries while on the other hand, small cap stocks show small average correlation relative to both small cap and large cap stocks across countries. The asset pricing test showed that large cap stocks are priced globally while the global pricing is rejected for small cap stocks. Early studies relating the small cap and large cap stocks support the initial hypothesis. Solnik (1974) and Stehle (1977) conducted a test on large cap stocks from U.S and other developed countries and found that large cap stocks carry fewer variations in their price as compared to other stocks. Fedorov and Sarkissian (2000) analyzed the variation of small cap stocks and large cap stocks of Russian equity market. They found that the degree of variation is

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weaker for portfolios of less diversified industries and for smaller-sized portfolios, but is stronger for stocks that have overseas listings. According to Huang (2004), large cap stocks of many countries are more likely to be cross-listed in foreign equity markets, so these stocks have more investor recognition and face less direct or indirect investment barriers as compared to small cap stocks. While large cap stocks are exposed to more risk as compared to small cap stocks which only face local risk. Guidolin and Nicodano (2005) investigated the effect of variance risk on the portfolio choices of investors, considering the assets of European and North American small equity portfolios. According to Guidolin and Nicodano , small cap stocks are well known to show asymmetric risk across bull and bear markets. They found that small cap stocks imply above-average levels of variance risk, which may significantly reduce their appeal in the portfolio. Various researches on small cap stocks show that the cross-sectional distribution of the equity risk premium is related to variance risk [Harvey and Siddique, 2000; Barone-Adesi, Gagliardini, and Urga (2004)]. The size of the U.S. small cap premium has been examined for more than twenty years. Pastor (2000) reported that a small cap portfolio (consisting of small firms) paid 0.17% per month in excess of the risk-adjusted return on a large cap portfolio (composed of large firms) from 1927 to 1996. There has been a number of recent studies of the FED model, including Asness (2003), Durr and Giot (2005), Estrada(2006), Gwilym et al (2006), Hjalmarsson (2004), Jansen and Wang (2004), Koivu et al (2005), Maio (2005), Malkiel (2003), Salomons (2004) and Thomas (2005). Asness who studied the period from 1926 to 2002 found no long term (10 and 20 years) predictive power of absolute real stock returns using the FED model. For shorter periods, the predictive power was better but still at very low levels. For the more recent period, the FED model did a better job explaining actual market behavior than in the earlier period. Like Campbell and Shiller (1998, 2001) before him, Asness found that for long-term predictions of absolute stock returns, P/E alone did a better job than the FED model.

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According to Chang and Thomas (1989), the author states that, this study examines the impact of diversification strategy on risk and return in diversified firms. Following an assessment of previous research on strategic risk, relationships between risk, return, and diversification strategy are hypothesized. Regression analysis shows that differences in risk-return performance among diversified firms are more closely associated with structural factors associated with markets and businesses than with the particular diversification strategy chosen. Returns also influence the choice of diversification strategies which, in turn, do not get rewarded with higher profits. A curvilinear risk-return relationship is also observed which is consistent with previous theoretical suggestions. Implications for the strategic management of risk are then drawn. According to Bettis and Mahajan (1985), they have studies many firms on the base sample of 80 firms; this paper examines the risk/return performance of related and unrelated diversified firms at the level of accounting data. The results suggest that although on the average related diversified firms outperform unrelated diversified firms, related diversification offers no guarantee of a favorable risk/return performance. (Many low performers are related diversifiers.) In fact, different diversification strategies can result in similar risk/return performance. However, a favorable risk/return performance is extremely hard to achieve with unrelated diversification. The study identifies diversified firms that have managed to simultaneously reduced risks and increase returns. The results indicate that these firms differ from other firms on some managerially useful dimensions. The differences suggest clues to guide other diversified firms to improve their risk/return performance. Analysis of Bell, (1995), expected utility theory is widely acknowledged to be a rational approach to making decisions involving risk. Yet the methodology gives no explicit role to measures of risk and return. In this paper we identify those families of utility functions that are compatible with a risk-return interpretation. From these families we deduce utility-compatible measures of risk. (Risk; Return; Utility; Investments)

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According Fong and Vasicek, (2000), the target value of an immunized portfolio at the horizon date defines the portfolio's target rate of return. If interest rates change by parallel shifts for all maturities, the portfolio's realized rate of return will not be below the target value. To the extent that non-parallel rate changes occur, however, the realized return may be less than the target value. The relative change in the end-ofhorizon value of an immunized portfolio resulting from such an arbitrary rate change will be proportional to the value of its immunization risk. Immunization risk equals the weighted variance of times to payment around the horizon date, hence depends on portfolio composition. For example, immunization risk will be low if portfolio payments cluster around the end of the horizon and high if payments are widely dispersed in time. One may minimize the extent to which a portfolio's realized return differs from its target return by minimizing the portfolio's immunization risk (while keeping the portfolio's duration equal to the remaining horizon length). Although risk minimization is the traditional objective of immunization, the immunization risk measure may also be used to optimize the risk-return tradeoff. The standard deviation of an immunized portfolio's rate of return over the investment horizon will be proportional to the value of its immunization risk. Thus an investor may choose from immunized portfolios of equal duration a portfolio with a high level of immunization risk in order to maximize his expected return. The empirical studies have shown the importance of the FED Model by emphasizing the how much this model is considered important by the investors due to mostly one reason that is the simplicity of the model. Among practitioners, the use of the original FED model has been more as an illustrative tool of market sentiment rather than a positivistic prediction model. Furthermore, the market uses the FED model mostly as a relative valuation tool rather than as an absolute valuation model. (Michael Clemens, 2007) Empirical studies have being done on a large collection of countries including Australia, Austria, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Switzerland, Netherlands, United Kingdom and the United States ( Durre and Giot, 2004).

25

2.1 Hypothesis We intend to test the hypothesis that does risk affect return in portfolio choices that differ with various characteristic like size, type and volume of trade. DV Risk IV Return

26

CHAPTER III
DATA & METHODOLOGY The data for the analysis is collected from Karachi stock exchange. As the stocks of financial sector are analyzed dynamically and risk is measured by classifying the stocks of financial sector into small cap and large cap stocks, so the stocks of the companies of financial sector listed on Karachi stock exchange are selected on the basis of their market capitalization. For the analysis of variation, non parametric method is used. According to Siegel (2004), non parametric methods are the statistical procedures for hypothesis testing that do not require a normal distribution. Furthermore, non parametric method is more efficient than parametric methods when distributions are not normal [Siegel (2004)]. In the first step, the stocks are divided into two portfolios. The portfolio consists of 10 stocks and data has been collected for the last 5 years that are 2005, 2006,2007,2008,2009. It is determined from analysis that market capitalization of these selected stocks did not remain same during last five years, that is why the assumptions on the market capitalization value of these stocks is made on the basis of market capitalization value on 6th march 2009. The data price data of 20 stocks is collected from 1 July 2005 to 30 June 2009.

RESEARCH PROCEDURE The first step after data calculation was calculation of 10 listed stocks. In order to evaluate the risk of small cap stocks and large cap stocks of financial sector of Pakistan stock market, different tools are used. The analysis is started using basic risk measuring tools including mean, median, Maximum and minimum value of stock prices, standard deviation, skew ness coefficient. The results of stock price variations of each companys stock are compared with the other stocks in order to measure the risky ness of each stock of selected stocks. Afterwards ANOVA test under MET is applied on the data. The results of ANOVA Test are also tested with Durban Watson Statistics. The index is calculated using market-value weighted index method. In this method, index is calculated using market capitalization value of each stock. The market

27

capitalization value is obtained by multiplying the number of shares outstanding with current market price. In this method, a base year is selected and on this base year, a base value is selected. The index for a particular date is calculated by using the following formula [Reilly and Brown (2007)].

According to Walpole (2000), Mean is the average value of series and is obtained by adding up series and dividing it by the number of observations. Median is the middle value or is the average of two middle values of the series. The median is a strong measure of the center of the distribution that is less sensitive to outliers than the mean. The difference between the mean value of each stock and stock-40 index shows the riskiness of that particular stock. Furthermore, the difference between mean value and median value of stocks of each stock and stock-40 index also shows the risk as well as the return of each stock [Walpole (2000)]. 3.1.1 Equality Test Afterwards the hypothesis test by classification is done on the data for which mean equality test is used. This test allows to analyze the equality of the means, medians, and variances across sub samples (or subgroups) of a single series. The tests assume that the sub samples are independent. 3.1.2 Mean Equality Test This test is based on a single-factor, between-subjects, analysis of variance (ANOVA). The purpose of this test is that if the subgroups have the same mean, then the variability between the sample means (between groups) should be the same as the variability within any subgroup (within group). Denote groups (2004)]: the i-th observation in subgroup as , where for

. The between and within sums of squares are defined as [Siegel

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In the above equation

is the sample mean within group

and

is the overall

sample mean. According to Siegel (2004), The F-statistic for the equality of means according to the assumption that the subgroup means are identical is computed as:

In the above equation distribution with

is the total number of observations. The F-statistic has an Fnumerator degrees of freedom and denominator degrees

of freedom under the null hypothesis of independent and identical normal distribution, with equal means and variances in each subgroup. When the subgroup variances are heterogeneous, the Welch (1951) version of the test statistic is used. The purpose is to create a modified F-statistic that accounts for the unequal variances. Using the Cochran (1937) weight function,

In the above equation, statistic can be formed as

is the sample variance in subgroup , the modified F-

In the above equation

is a normalized weight and

is the weighted grand mean,

The numerator of the adjusted statistic is the weighted between-group mean squares and the denominator is the weighted within-group mean squares[Cochran (1937)].

29

Under the null hypothesis of equal means but possibly unequal variances, approximate F-distribution with degrees-of-freedom, where

has an

3.1.3 Pool Regression Typically time-series regression models need a sufficient history of data to yield robust results (you need at least 2 years of data to get sensible results). If you have less than 2 years of data, but you have this for multiple groups, like stores or similar products, then you can still build a "pooled" model by combining time-series observations across several groups. Pooled Regression is usually carried out on Time-Series Cross-Sectional data- data that has observations over time for several different units or cross-sections. For example concatenating Monthly Net Income data for different companies with Quarterly GDP information allows an analyst to model the relationship between Net Income and GDP even with limited Quarters of data per company, since concatenating across companies increases observations, yielding greater degrees of freedom. Pooled regression works similar to regular regression, except an extra intercept or dummy is added for each store. It is important to remember that Pooled Regression Coefficients do not measure demand effect separately for each store, but yield an overall measure of demand. This technique can also be used with product groups instead of stores provided the products are similar. In this case it is important to remember that the model doesnt really measure demand effects of the variables for a specific product, but instead are measures of overall cross-product demand. This approach can be used when the groups to be pooled are relatively similar or homogenous. Level differences can be removed by 'mean-centering' (similar to Within-Effects Model) the data across the groups (subtracting the mean or average of

30

each group from observations for the group). The model can be directly run using Ordinary Least Squares on the concatenated groups. If the model yields large standard errors (small T-Stats), this could be a warning flag that the groups are not all that homogenous and a more advanced approach like Random Effects Model may be more appropriate. 3.1.4 Correlation In statistics, correlation and dependence are any of a broad class of statistical relationships between two or more random variables or observed data values. Familiar examples of dependent phenomena include the correlation between the physical statures of parents and their offspring, and the correlation between the demand for a product and its price. Correlations are useful because they can indicate a predictive relationship that can be exploited in practice. For example, an electrical utility may produce less power on a mild day based on the correlation between electricity demand and weather. Correlations can also suggest possible causal, or mechanistic relationships; however statistical dependence is not sufficient to demonstrate the presence of such a relationship.

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Chapter IV
Results 4.1 Common Effect Table 4.1 COMMON EFFECT Dependent Variable: RET? Method: Pooled Least Squares Sample(adjusted): 1 22 Included observations: 22 after adjusting endpoints Number of cross-sections used: 50 Total panel (unbalanced) observations: 988 Variable C RISK? R-squared Adjusted R-squared S.E. of regression

Coefficient -0.000202 0.000915 0.013693 0.012693 0.031327

Std. Error 0.001278 0.000247

t-Statistic -0.158017 3.699824

Prob. 0.8745 0.0002

Sum squared resid Durbin-Watson stat

0.967631 1.717658

Explanation: HO: Beta is equal to zero H1: Beta is not equal to zero. From the table 4.1, we found that the coefficient of Risk, is positive but the statistically it is significant. Thus the test has been rejected. At 10% significance level Ho is rejected. So we can say that is significant. R-Squared = Coefficient of determination , which tells or explains us how much variations, in Dependent Variable are explained in the effect in variation in

32

Independent Variable. It explains percentage of variation in dependent variable of the model because of independent variable. It explains % of variation in dependent variable of the model because of independent variable. In our case the explained variable are 13%, which is a not a good sign. Durbin Watson = Durbin Watson test the presence of the problem of auto correlating in the error terms. In our case Durbin Watson statistics, is 1.71, above 1.5, which implies that there are very minor chances of error of auto correlation. 4.2 Fixed Effect Table 4.2 Fixed Effect Dependent Variable: RET? Method: Pooled Least Squares Sample(adjusted): 1 22 Included observations: 22 after adjusting endpoints Number of cross-sections used: 50 Total panel (unbalanced) observations: 988 Variable RISK? _7_HABIB--C _9_JSCL--C _7_PAKREFNRY--C _9_PSO--C _5_HABIB--C _7_PSO--C _9_PAKREFNRY--C _8_PSO--C _6_PSO--C _8_PAKREFNRY--C _9_ATLAS--C _6_PAKREFNRY--C _5_ATLAS--C _5_PSO--C _6_ATKCEMET--C

Coefficient Std. Error 0.002271 0.000462 -0.034892 -0.026105 -0.025954 -0.02274 -0.019143 -0.013909 -0.013862 -0.00984 -0.009595 -0.008872 -0.00864 -0.007418 -0.007303 -0.00682 -0.006522

t-Statistic 4.91158

Prob. 0

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_8_ALFALAH--C _9_ALFALAH--C _8_INDUS--C _5_FAUJI--C _9_HABIB--C _6_HABIB--C _7_INDUS--C _6_ATLAS--C _7_OGDC--C _5_OGDC--C _7_ATLAS--C _5_PAKREFNRY--C _9_OGDC--C _7_ATKCEMET--C _9_FAUJI--C _7_JSCL--C _8_OGDC--C _6_JSCL--C _7_FAUJI--C _5_ATKCEMET--C _8_FAUJI--C _8_ATKCEMET--C _6_ALFALAH--C _9_ATKCEMET--C _5_JSCL--C _8_HABIB--C _6_OGDC--C _6_FAUJI--C _5_ALFALAH--C _7_ALFALAH--C _9_INDUS--C _8_ATLAS--C _6_INDUS--C _5_INDUS--C _8_JSCL--C Fixed Effects R-squared Adjusted R-squared S.E. of regression Durbin-Watson stat

-0.006093 -0.005972 -0.005941 -0.005636 -0.005019 -0.004966 -0.004232 -0.003829 -0.003673 -0.003628 -0.003001 -0.002825 -0.002431 -0.001821 -0.001814 -0.001714 -0.001623 -0.001436 -0.000427 0.000922 0.001114 0.001141 0.001668 0.002117 0.002187 0.002519 0.002751 0.004909 0.005234 0.006532 0.007353 0.009207 0.009563 0.010652 0.012596 0.074544 0.02516 0.031128 1.818021

4.3 Random Effect Table 4.3

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Random Effect Dependent Variable: RET? Method: GLS (Variance Components) Sample: 1 22 Included observations: 22 Number of cross-sections used: 50 Total panel (unbalanced) observations: 988 Std. Variable C RISK? _7_PAKREFNRY--C _7_HABIB--C _9_PSO--C _9_JSCL--C _9_PAKREFNRY--C _9_ALFALAH--C _5_ATLAS--C _8_PAKREFNRY--C _9_ATLAS--C _5_FAUJI--C _7_PSO--C _8_ALFALAH--C _6_ATKCEMET--C _8_INDUS--C _5_PSO--C _6_PAKREFNRY--C _6_ATLAS--C _5_OGDC--C _7_INDUS--C _8_PSO--C _7_ATLAS--C _5_HABIB--C _6_PSO--C _9_FAUJI--C _8_OGDC--C _5_PAKREFNRY--C _6_HABIB--C _9_OGDC--C _9_HABIB--C _7_FAUJI--C _6_JSCL--C _7_OGDC--C _7_ATKCEMET--C tProb. 0.7747 0.0002 Coefficient Error Statistic 0.00135 -0.000389 0.000973 -0.002428 -0.002384 -0.001427 -0.001251 -0.001134 -0.000725 -0.000707 -0.000662 -0.000637 -0.000636 -0.000594 -0.00059 -0.000535 -0.000519 -0.000414 -0.000345 -0.000315 -0.000309 -0.000267 -0.000262 -0.000205 -0.000194 -0.000179 -0.00015 -4.32E-05 -3.57E-05 7.17E-05 7.82E-05 7.83E-05 9.73E-05 9.99E-05 0.00019 0.000235 9 0.00026 -0.28626 3.75021 3

35

_8_FAUJI--C _5_ATKCEMET--C _8_ATKCEMET--C _7_JSCL--C _9_ATKCEMET--C Test for Equality of Means Between _5_JSCL--C Series _6_OGDC--C Sample: 1 30 _6_FAUJI--C Included observations: 30 _5_ALFALAH--C Method df _8_HABIB--C Value Anova F- (4, 103) 0.880093 _7_ALFALAH--C _9_INDUS--C statistic _6_INDUS--C _5_INDUS--C _8_ATLAS--C _8_JSCL--C Random Effects R-squared Adjusted R-squared S.E. of regression Durbin-Watson stat

Return alfalah

Probability 0.4787

0.000253 0.000346 0.000501 0.000578 0.000578 Test for Equality of Means Between 0.00073 Series 0.000753 Sample: 1 30 0.000773 Included observations: 30 0.000874 Method df Value 0.000966 Anova F(4, 103) 21.72775 0.001086 0.001318 statistic 0.001509 0.001734 0.001885 0.003432 0.027113 0.026126 0.031113 1.740366

Risk alfalah

Probability 0

4.4 Tests for Equality of Means Table 4.4 Explanation: HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 48%, therefore, Ho is accepted, this means that return of Bank AlFalah, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that Bank AlFalah is not found to be equal in Year 2005, 2006, 2007, 2008, 2009.

36

Table 4.5 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 100) statistic Return Atk Cement Value 0.238812 Probability 0.9158 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 100) statistic Risk Atk cement Value 0.238812 Probability 0.9158

Explanation: HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 92%, therefore, Ho is accepted, this means that return of Attock Cement, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 92%, therefore, Ho is accepted and this means that Attock Cement is found to be equal in Year 2005, 2006, 2007, 2008, 2009. Table 4.6 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method df Value ANOVA F- (4, 84) 1.8976 statistic

ret atlas Batrey

Test for Equality of Means Between Series Sample: 1 30 Included observations: 30

Risk Atlas Batry

Probability 0.1184

Method ANOVA Fstatistic

df (4, 84)

Value 19.61763

Probability 0

Explanation: HO: 1, 2, 3, 4, 5 H1: 12345

37

In the case of Return, probability is 12%, therefore, Ho is accepted, this means that return of Atlas Battery, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that Atlas Battery is not found to be equal in Year 2005, 2006, 2007, 2008, 2009.

Table 4.7 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method do ANOVA Fstatistic Explanation: HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 92%, therefore, Ho is accepted, this means that return of Fauji Fertilizer, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that Fauji Fertilizer is not found to be equal in Year 2005, 2006, 2007, 2008, 2009. Table 4.8 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method Df ANOVA F(4, 102) Return Habib Value 0.764547 Probability 0.5507 Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 102) Value 26.4811 Test for Equality of Means Between Series Risk Habib Probability 0 (4, 103) Return Fauji Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method do ANOVA Fstatistic (4, 103) Risk Fauji

Value 0.246575

Probability 0.9111

Value 18.06381

Probability 0

38

statistic

statistic

Explanation: HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 55%, therefore, Ho is accepted, this means that return of Habib Securities, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that Habib Securities is not found to be equal in Year 2005, 2006, 2007, 2008, 2009. Table 4.9 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method ANOVA Fstatistic Explanation: HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 79%, therefore, Ho is accepted, this means that return of Indus Dying, found to be equal in year 2005-6-7-8-2009. df (4, 42) Value 0.431743 Probability 0.7849 ret Indus Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method ANOVA Fstatistic df (4, 42) Value 0.957245 Probability 0.4409 Risk Indus

39

In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that Indus Dying is not found to be equal in Year 2005, 2006, 2007, 2008, 2009. Table 4.10 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method Df ANOVA F- (4, 100) statistic Return Jscl Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 100) statistic Risk Jscl

Value 2.983227

Probability 0.0226

Value 50.39303

Probability 0

Explanation: HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 23%, therefore, Ho is accepted, this means that return of J.S.C.L, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that J.S.C.L is not found to be equal in Year 2005, 2006, 2007, 2008, 2009. Table 4.11 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method ANOVA F-statistic Df (4, 100) Value 0.338873 Return OGDCL Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Probability Method ANOVA F0.8512 statistic df (4, 100) Value 41.80957 Probability 0 Risk OGDCl

40

Explanation: HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 85%, therefore, Ho is accepted, this means that return of O.G.D.C, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that O.G.D.C is not found to be equal in Year 2005, 2006, 2007, 2008, 2009. Table 4.12 Test for Equality of Means Between Series Return PkRfnry Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 101) statistic Value 0.736857 Probability 0.569 Test for Equality of Means Between Series Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 101) statistic Risk PkRfnry Value 20.70222 Probability 0

Explanation HO: 1, 2, 3, 4, 5 H1: 12345 In the case of Return, probability is 57%, therefore, Ho is accepted, this means that return of Pak Refinery, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that Pak Refinery is not found to be equal in Year 2005, 2006, 2007, 2008, 2009. Table 4.13 Test for Equality of Means Between Return PSO Test for Equality of Means Between Risk PSO

41

Series Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 103) statistic Explanation:

Value 0.202956

Probability 0.9362

Series Sample: 1 30 Included observations: 30 Method df ANOVA F(4, 103) statistic

Value 16.64375

Probability 0

In the case of Return, probability is 94%, therefore, Ho is accepted, this means that return of PSO, found to be equal in year 2005-6-7-8-2009. In the case of Risk, probability is 0%, therefore, Ho is rejected, and this means that PSO is not found to be equal in Year 2005, 2006, 2007, 2008, 2009. 4.5 Correlation 4.5.1 Correlation (Return) Table 4.14

Explanation: It shows that return in year 2005 of Attock Cement is find to be 56% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 of Atlas Battery is find to be -31% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 of Atlas Battery is find to be -26% correlated with the return of Attock Cement in year 2005.

42

The table shows that return in year 2005 of Fauji Fertilizer is find to be 83% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 of Fauji Fertilizer is find to be 67% correlated with the return of Attock Cement in year 2005. The table shows that return in year 2005 of Fauji Fertilizer is find to be -55% correlated with the return of Atlas Battery in year 2005. The table shows that return in year 2005 of Habib Securities is find to be -26% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 of Habib Securities is find to be -66% correlated with the return of Attock Cement in year 2005. The table shows that return in year 2005 of Habib Securities is find to be 27% correlated with the return of Atlas Battery in year 2005. The table shows that return in year 2005 of Habib Securities is find to be -50% correlated with the return of Fauji Fertilizer in year 2005. The table shows that return in year 2005 Of Indus Dying is find to be 4% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 Of Indus Dying is find to be -22% correlated with the return of Attock Cement in year 2005. The table shows that return in year 2005 Of Indus Dying is find to be -18% correlated with the return of Atlas Battery in year 2005. The table shows that return in year 2005 Of Indus Dying is find to be 15% correlated with the return of Fauji Fertilizer in year 2005. The table shows that return in year 2005 Of Indus Dying is find to be 35% correlated with the return of Habib Securities in year 2005. The table shows that return in year 2005 Of JSCL is find to be -11% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 Of JSCL is find to be -68% correlated with the return of Attock Cement in year 2005. . The table shows that return in year 2005 Of JSCL is find to be -1% correlated with the return of Atlas Battery in year 2005. . The table shows that return in year 2005 Of JSCL is find to be -37% correlated with the return of Fauji Fertilizer in year 2005. . The table shows that return in year 2005 Of JSCL is find to be 71% correlated with the return of Habib Securities in year 2005. . The table shows that return in year 2005 Of JSCL is find to be 25% correlated with the return of Indus Dying in year 2005.

43

The table shows that return in year 2005 Of OGDC is find to be -16% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 Of OGDC is find to be -66% correlated with the return of Attock Cement in year 2005. The table shows that return in year 2005 Of OGDC is find to be 8% correlated with the return of Atlas Battery in year 2005. The table shows that return in year 2005 Of OGDC is find to be -40% correlated with the return of Fauji Fertilizer in year 2005. The table shows that return in year 2005 Of OGDC is find to be 88% correlated with the return of Habib Securities in year 2005. The table shows that return in year 2005 Of OGDC is find to be -39% correlated with the return of Indus Dying in year 2005. The table shows that return in year 2005 Of OGDC is find to be 75% correlated with the return of JSCL in year 2005. The table shows that return in year 2005 Of Pak Refinery is find to be 34% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 Of Pak Refinery is find to be 20% correlated with the return of Attock Cement in year 2005. The table shows that return in year 2005 Of Pak Refinery is find to be -18% correlated with the return of Atlas Battery in year 2005 The table shows that return in year 2005 Of Pak Refinery is find to be 35% correlated with the return of Fauji Fertilizer in year 2005. The table shows that return in year 2005 Of Pak Refinery is find to be -3% correlated with the return of Habib Securities in year 2005. The table shows that return in year 2005 Of Pak Refinery is find to be -27% correlated with the return of Indus Dying in year 2005. The table shows that return in year 2005 Of Pak Refinery is find to be -24% correlated with the return of JSCL in year 2005. The table shows that return in year 2005 Of Pak Refinery is find to be 8% correlated with the return of OGDC in year 2005. The table shows that return in year 2005 Of PSO is find to be -24% correlated with the return of Bank AlFalah in year 2005. The table shows that return in year 2005 Of PSO is find to be -56% correlated with the return of Attock Cement in year 2005.The table shows that return in year 2005 Of PSO is find to be 11% correlated with the return of Atlas Battery in year 2005. The table shows that return in year 2005 Of PSO is find to be -39% correlated with the return of Fauji Fertilizer in year 2005. . The

44

table shows that return in year 2005 Of PSO is find to be 81% correlated with the return of Habib Securities in year 2005.The table shows that return in year 2005 Of PSO is find to be 31% correlated with the return of Indus Dying in year 2005.The table shows that return in year 2005 Of PSO is find to be 37% correlated with the return of JSCL in year 2005. The table shows that return in year 2005 Of PSO is find to be 84% correlated with the return of OGDC in year 2005.The table shows that return in year 2005 Of Pak Refinery is find to be 35% correlated with the return of Bank AlFalah in year 2005. Table 4.15

Explanation: It shows that return in year 2006 of Attock Cement is find to be 5% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 of Atlas Battery is find to be -22% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 of Atlas Battery is find to be 8% correlated with the return of Attock Cement in year 2006. The table shows that return in year 2006 of Fauji Fertilizer is find to be 26% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 of Fauji Fertilizer is find to be 25% correlated with the return of Attock Cement in year 2006. The table shows that return in year 2006 of Fauji Fertilizer is find to be 17% correlated with the return of Atlas Battery in year 2006.

45

The table shows that return in year 2006 of Habib Securities is find to be 32% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 of Habib Securities is find to be 29% correlated with the return of Attock Cement in year 2006. The table shows that return in year 2006 of Habib Securities is find to be 29% correlated with the return of Atlas Battery in year 2006. The table shows that return in year 2006 of Habib Securities is find to be 98% correlated with the return of Fauji Fertilizer in year 2006. The table shows that return in year 2006 Of Indus Dying is find to be 43% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 Of Indus Dying is find to be 17% correlated with the return of Attock Cement in year 2006. The table shows that return in year 2006 Of Indus Dying is find to be 5% correlated with the return of Atlas Battery in year 2006. The table shows that return in year 2006 Of Indus Dying is find to be 66% correlated with the return of Fauji Fertilizer in year 2006. The table shows that return in year 2006 Of Indus Dying is find to be 68% correlated with the return of Habib Securities in year 2006. The table shows that return in year 2006 Of JSCL is find to be 25% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 Of JSCL is find to be 42% correlated with the return of Attock Cement in year 2006. . The table shows that return in year 2006 Of JSCL is find to be 74% correlated with the return of Atlas Battery in year 2006.The table shows that return in year 2006 Of JSCL is find to be 25% correlated with the return of Fauji Fertilizer in year 2006.The table shows that return in year 2006 Of JSCL is find to be 42% correlated with the return of Habib Securities in year 2006.The table shows that return in year 2006 Of JSCL is find to be 46% correlated with the return of Indus Dying in year 2006. The table shows that return in year 2006 Of OGDC is find to be 41% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 Of OGDC is find to be 8% correlated with the return of Attock Cement in year 2006. The table shows that return in year 2006 Of OGDC is find to be 13% correlated with the return of Atlas Battery in year 2006. The table shows that return in year 2006 Of OGDC is find to be 93% correlated with the return of Fauji Fertilizer in year 2006.

46

The table shows that return in year 2006 Of OGDC is find to be 94% correlated with the return of Habib Securities in year 2006. The table shows that return in year 2006 Of OGDC is find to be 56% correlated with the return of Indus Dying in year 2006. The table shows that return in year 2006 Of OGDC is find to be 23% correlated with the return of JSCL in year 2006. The table shows that return in year 2006 Of Pak Refinery is find to be -26% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 Of Pak Refinery is find to be 5% correlated with the return of Attock Cement in year 2006. The table shows that return in year 2006 Of Pak Refinery is find to be 15% correlated with the return of Atlas Battery in year 2006 The table shows that return in year 2006 Of Pak Refinery is find to be 83% correlated with the return of Fauji Fertilizer in year 2006. The table shows that return in year 2006 Of Pak Refinery is find to be 75% correlated with the return of Habib Securities in year 2006. The table shows that return in year 2006 Of Pak Refinery is find to be 32% correlated with the return of Indus Dying in year 2006. The table shows that return in year 2006 Of Pak Refinery is find to be -9% correlated with the return of JSCL in year 2006. The table shows that return in year 2006 Of Pak Refinery is find to be 74% correlated with the return of OGDC in year 2006. The table shows that return in year 2006 Of PSO is find to be 12% correlated with the return of Bank AlFalah in year 2006. The table shows that return in year 2006 Of PSO is find to be -11% correlated with the return of Attock Cement in year 2006.The table shows that return in year 2006 Of PSO is find to be 14% correlated with the return of Atlas Battery in year 2006. The table shows that return in year 2006 Of PSO is find to be 91% correlated with the return of Fauji Fertilizer in year 2006. . The table shows that return in year 2006 Of PSO is find to be 84% correlated with the return of Habib Securities in year 2006.The table shows that return in year 2006 Of PSO is find to be 46% correlated with the return of Indus Dying in year 2006.The table shows that return in year 2006 Of PSO is find to be -2% correlated with the return of JSCL in year 2006. The table shows that return in year 2006 Of PSO is find to be 86% correlated with the return of OGDC in year 2006.The table shows that return in year

47

2006 Of PSO is find to be 89% correlated with the return of Pak Refinery in year 2006. Table 4.16

Explanation: It shows that return in year 2007 of Attock Cement is find to be 13% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 of Atlas Battery is find to be -22% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 of Atlas Battery is find to be -14% correlated with the return of Attock Cement in year 2007. The table shows that return in year 2007 of Fauji Fertilizer is find to be 28% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 of Fauji Fertilizer is find to be 31% correlated with the return of Attock Cement in year 2007. The table shows that return in year 2007 of Fauji Fertilizer is find to be 18% correlated with the return of Atlas Battery in year 2007. The table shows that return in year 2007 of Habib Securities is find to be 50% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 of Habib Securities is find to be 8% correlated with the return of Attock Cement in year 2007. The table shows that return in year 2007 of Habib Securities is find to be 46% correlated with the return of Atlas Battery in year 2007. The table shows that return in year 2007 of Habib Securities is find to be 79% correlated with the return of Fauji Fertilizer in year 2007.

48

The table shows that return in year 2007 Of Indus Dying is find to be 56% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 Of Indus Dying is find to be 24% correlated with the return of Attock Cement in year 2007. The table shows that return in year 2007 Of Indus Dying is find to be -22% correlated with the return of Atlas Battery in year 2007. The table shows that return in year 2007 Of Indus Dying is find to be 71% correlated with the return of Fauji Fertilizer in year 2007. The table shows that return in year 2007 Of Indus Dying is find to be 67% correlated with the return of Habib Securities in year 2007. The table shows that return in year 2007 Of JSCL is find to be -39% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 Of JSCL is find to be -42% correlated with the return of Attock Cement in year 2007.The table shows that return in year 2007 Of JSCL is find to be 14% correlated with the return of Atlas Battery in year 2007.The table shows that return in year 2007 Of JSCL is find to be 40% correlated with the return of Fauji Fertilizer in year 2007.The table shows that return in year 2007 Of JSCL is find to be 20% correlated with the return of Habib Securities in year 2007.The table shows that return in year 2007 Of JSCL is find to be -6% correlated with the return of Indus Dying in year 2007. The table shows that return in year 2007 Of OGDC is find to be 13% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 Of OGDC is find to be 5% correlated with the return of Attock Cement in year 2007. The table shows that return in year 2007 Of OGDC is find to be 16% correlated with the return of Atlas Battery in year 2007. The table shows that return in year 2007 Of OGDC is find to be 94% correlated with the return of Fauji Fertilizer in year 2007. The table shows that return in year 2007 Of OGDC is find to be 73% correlated with the return of Habib Securities in year 2007. The table shows that return in year 2007 Of OGDC is find to be 73% correlated with the return of Indus Dying in year 2007. The table shows that return in year 2007 Of OGDC is find to be 53% correlated with the return of JSCL in year 2007.

49

The table shows that return in year 2007 Of Pak Refinery is find to be 53% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 Of Pak Refinery is find to be -30% correlated with the return of Attock Cement in year 2007. The table shows that return in year 2007 Of Pak Refinery is find to be 60% correlated with the return of Atlas Battery in year 2007 The table shows that return in year 2007 Of Pak Refinery is find to be 30% correlated with the return of Fauji Fertilizer in year 2007. The table shows that return in year 2007 Of Pak Refinery is find to be 80% correlated with the return of Habib Securities in year 2007. The table shows that return in year 2007 Of Pak Refinery is find to be 28% correlated with the return of Indus Dying in year 2007. The table shows that return in year 2007 Of Pak Refinery is find to be 5% correlated with the return of JSCL in year 2007. The table shows that return in year 2007 Of Pak Refinery is find to be 2% correlated with the return of OGDC in year 2007. The table shows that return in year 2007 Of PSO is find to be 22% correlated with the return of Bank AlFalah in year 2007. The table shows that return in year 2007 Of PSO is find to be -5% correlated with the return of Attock Cement in year 2007.The table shows that return in year 2007 Of PSO is find to be 3% correlated with the return of Atlas Battery in year 2007. The table shows that return in year 2007 Of PSO is find to be 91% correlated with the return of Fauji Fertilizer in year 2007. . The table shows that return in year 2007 Of PSO is find to be 68% correlated with the return of Habib Securities in year 2007.The table shows that return in year 2007 Of PSO is find to be 67% correlated with the return of Indus Dying in year 2007.The table shows that return in year 2007 Of PSO is find to be 65% correlated with the return of JSCL in year 2007. The table shows that return in year 2007 Of PSO is find to be 95% correlated with the return of OGDC in year 2007.The table shows that return in year 2007 Of PSO is find to be 28% correlated with the return of Pak Refinery in year 2007.

Table 4.17

50

Explanation: It shows that return in year 2008 of Attock Cement is find to be 36% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 of Atlas Battery is find to be 13% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 of Atlas Battery is find to be 18% correlated with the return of Attock Cement in year 2008. The table shows that return in year 2008 of Fauji Fertilizer is find to be 34% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 of Fauji Fertilizer is find to be 10% correlated with the return of Attock Cement in year 2008. The table shows that return in year 2008 of Fauji Fertilizer is find to be -27% correlated with the return of Atlas Battery in year 2008. The table shows that return in year 2008 of Habib Securities is find to be 28% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 of Habib Securities is find to be 32% correlated with the return of Attock Cement in year 2008. The table shows that return in year 2008 of Habib Securities is find to be 30% correlated with the return of Atlas Battery in year 2008. The table shows that return in year 2008 of Habib Securities is find to be 36% correlated with the return of Fauji Fertilizer in year 2008. The table shows that return in year 2008 Of Indus Dying is find to be -9% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year

51

2008 Of Indus Dying is find to be 26% correlated with the return of Attock Cement in year 2008. The table shows that return in year 2008 Of Indus Dying is find to be -10% correlated with the return of Atlas Battery in year 2008. The table shows that return in year 2008 Of Indus Dying is find to be 24% correlated with the return of Fauji Fertilizer in year 2008. The table shows that return in year 2008 Of Indus Dying is find to be 7% correlated with the return of Habib Securities in year 2008. The table shows that return in year 2008 Of JSCL is find to be 21% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 Of JSCL is find to be -27% correlated with the return of Attock Cement in year 2008.The table shows that return in year 2008 Of JSCL is find to be 71% correlated with the return of Atlas Battery in year 2008.The table shows that return in year 2008 Of JSCL is find to be -1% correlated with the return of Fauji Fertilizer in year 2008.The table shows that return in year 2008 Of JSCL is find to be -25% correlated with the return of Habib Securities in year 2008.The table shows that return in year 2008 Of JSCL is find to be -43% correlated with the return of Indus Dying in year 2008. The table shows that return in year 2008 Of OGDC is find to be -6% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 Of OGDC is find to be 15% correlated with the return of Attock Cement in year 2008. The table shows that return in year 2008 Of OGDC is find to be 11% correlated with the return of Atlas Battery in year 2008. The table shows that return in year 2008 Of OGDC is find to be 31% correlated with the return of Fauji Fertilizer in year 2008. The table shows that return in year 2008 Of OGDC is find to be 49% correlated with the return of Habib Securities in year 2008. The table shows that return in year 2008 Of OGDC is find to be 53% correlated with the return of Indus Dying in year 2008. The table shows that return in year 2008 Of OGDC is find to be -3% correlated with the return of JSCL in year 2008. The table shows that return in year 2008 Of Pak Refinery is find to be -26% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 Of Pak Refinery is find to be 5% correlated with the return of Attock Cement in year 2008. The table shows that return in year 2008 Of Pak Refinery is find to be 15%

52

correlated with the return of Atlas Battery in year 2008 The table shows that return in year 2008 Of Pak Refinery is find to be 83% correlated with the return of Fauji Fertilizer in year 2008. The table shows that return in year 2008 Of Pak Refinery is find to be 75% correlated with the return of Habib Securities in year 2008. The table shows that return in year 2008 Of Pak Refinery is find to be 32% correlated with the return of Indus Dying in year 2008. The table shows that return in year 2008 Of Pak Refinery is find to be -9% correlated with the return of JSCL in year 2008. The table shows that return in year 2008 Of Pak Refinery is find to be 74% correlated with the return of OGDC in year 2008. The table shows that return in year 2008 Of PSO is find to be 12% correlated with the return of Bank AlFalah in year 2008. The table shows that return in year 2008 Of PSO is find to be -11% correlated with the return of Attock Cement in year 2008.The table shows that return in year 2008 Of PSO is find to be 14% correlated with the return of Atlas Battery in year 2008. The table shows that return in year 2008 Of PSO is find to be 91% correlated with the return of Fauji Fertilizer in year 2008. . The table shows that return in year 2008 Of PSO is find to be 84% correlated with the return of Habib Securities in year 2008.The table shows that return in year 2008 Of PSO is find to be 46% correlated with the return of Indus Dying in year 2008.The table shows that return in year 2008 Of PSO is find to be -2% correlated with the return of JSCL in year 2008. The table shows that return in year 2008 Of PSO is find to be 89% correlated with the return of Pak Refinery in year 2008. Table 4.18

Explanation:

53

It shows that return in year 2009 of Attock Cement is found to be -89% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 of Atlas Battery is find to be -97% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 of Atlas Battery is find to be 98% correlated with the return of Attock Cement in year 2009. The table shows that return in year 2009 of Fauji Fertilizer is find to be -67% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 of Fauji Fertilizer is find to be 93% correlated with the return of Attock Cement in year 2009. The table shows that return in year 2009 of Fauji Fertilizer is find to be 83% correlated with the return of Atlas Battery in year 2009. The table shows that return in year 2009 of Habib Securities is find to be -86% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 of Habib Securities is find to be 53% correlated with the return of Attock Cement in year 2009. The table shows that return in year 2009 of Habib Securities is find to be 70% correlated with the return of Atlas Battery in year 2009. The table shows that return in year 2009 of Habib Securities is find to be 19% correlated with the return of Fauji Fertilizer in year 2009. The table shows that return in year 2009 Of Indus Dying is find to be 7% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 Of Indus Dying is find to be 40% correlated with the return of Attock Cement in year 2009. The table shows that return in year 2009 Of Indus Dying is find to be 19% correlated with the return of Atlas Battery in year 2009. The table shows that return in year 2009 Of Indus Dying is find to be 70% correlated with the return of Fauji Fertilizer in year 2009. The table shows that return in year 2009 Of Indus Dying is find to be -57% correlated with the return of Habib Securities in year 2009. The table shows that return in year 2009 Of JSCL is find to be -46% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 Of

54

JSCL is find to be 81% correlated with the return of Attock Cement in year 2009.The table shows that return in year 2009 Of JSCL is find to be 67% correlated with the return of Atlas Battery in year 2009.The table shows that return in year 2009 Of JSCL is find to be 97% correlated with the return of Fauji Fertilizer in year 2009.The table shows that return in year 2009 Of JSCL is find to be -7% correlated with the return of Habib Securities in year 2009.The table shows that return in year 2009 Of JSCL is find to be 86% correlated with the return of Indus Dying in year 2009. The table shows that return in year 2009 Of OGDC is find to be -95% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 Of OGDC is find to be 99% correlated with the return of Attock Cement in year 2009. The table shows that return in year 2009 Of OGDC is find to be 100% correlated with the return of Atlas Battery in year 2009. The table shows that return in year 2009 Of OGDC is find to be 87% correlated with the return of Fauji Fertilizer in year 2009. The table shows that return in year 2009 Of OGDC is find to be 65% correlated with the return of Habib Securities in year 2009. The table shows that return in year 2009 Of OGDC is find to be 26% correlated with the return of Indus Dying in year 2009. The table shows that return in year 2009 Of OGDC is find to be 72% correlated with the return of JSCL in year 2009. The table shows that return in year 2009 Of Pak Refinery is find to be -46% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 Of Pak Refinery is find to be 82% correlated with the return of Attock Cement in year 2009. The table shows that return in year 2009 Of Pak Refinery is find to be 67% correlated with the return of Atlas Battery in year 2009 The table shows that return in year 2009 Of Pak Refinery is find to be 97% correlated with the return of Fauji Fertilizer in year 2009. The table shows that return in year 2009 Of Pak Refinery is find to be -6% correlated with the return of Habib Securities in year 2009. The table shows that return in year 2009 Of Pak Refinery is find to be 85% correlated with the return of Indus Dying in year 2009. The table shows that return in year 2009 Of Pak Refinery is find to be 100% correlated with the return of JSCL in year 2009. The table shows that return in year 2009 Of Pak Refinery is find to be 72% correlated with the return of OGDC in year 2009.

55

The table shows that return in year 2009 Of PSO is find to be -99% correlated with the return of Bank AlFalah in year 2009. The table shows that return in year 2009 Of PSO is find to be 95% correlated with the return of Attock Cement in year 2009.The table shows that return in year 2009 Of PSO is find to be 99% correlated with the return of Atlas Battery in year 2009. The table shows that return in year 2009 Of PSO is find to be 77% correlated with the return of Fauji Fertilizer in year 2009. . The table shows that return in year 2009 Of PSO is find to be 77% correlated with the return of Habib Securities in year 2009.The table shows that return in year 2009 Of PSO is find to be 8% correlated with the return of Indus Dying in year 2009.The table shows that return in year 2009 Of PSO is find to be 58% correlated with the return of JSCL in year 2009. The table shows that return in year 2009 Of PSO is find to be 98% correlated with the return of OGDC in year 2009.The table shows that return in year 2009 Of PSO is find to be 59% correlated with the return of Pak Refinery in year 2009. 4.5.2 Correlation (Risk) Table 4.19

Explanation: It shows that RISK in year 2005 of Attock Cement is found to be 12% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 of Atlas Battery is find to be 19% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005

56

of Atlas Battery is find to be 17% correlated with the RISK of Attock Cement in year 2005. The table shows that RISK in year 2005 of Fauji Fertilizer is find to be 17% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 of Fauji Fertilizer is find to be 80% correlated with the RISK of Attock Cement in year 2005. The table shows that RISK in year 2005 of Fauji Fertilizer is find to be 23% correlated with the RISK of Atlas Battery in year 2005. The table shows that RISK in year 2005 of Habib Securities is find to be 47% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 of Habib Securities is find to be 28% correlated with the RISK of Attock Cement in year 2005. The table shows that RISK in year 2005 of Habib Securities is find to be -5% correlated with the RISK of Atlas Battery in year 2005. The table shows that RISK in year 2005 of Habib Securities is find to be 45% correlated with the RISK of Fauji Fertilizer in year 2005. The table shows that RISK in year 2005 Of Indus Dying is find to be -33% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 Of Indus Dying is find to be -45% correlated with the RISK of Attock Cement in year 2005. The table shows that RISK in year 2005 Of Indus Dying is find to be 43% correlated with the RISK of Atlas Battery in year 2005. The table shows that RISK in year 2005 Of Indus Dying is find to be -29% correlated with the RISK of Fauji Fertilizer in year 2005. The table shows that RISK in year 2005 Of Indus Dying is find to be -36% correlated with the RISK of Habib Securities in year 2005. The table shows that RISK in year 2005 Of JSCL is find to be 39% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 Of JSCL is find to be 7% correlated with the RISK of Attock Cement in year 2005.The table shows that RISK in year 2005 Of JSCL is find to be -10% correlated with the RISK of Atlas Battery in year 2005.The table shows that RISK in year 2005 Of JSCL is find to be 41% correlated with the RISK of Fauji Fertilizer in year 2005.The table shows that RISK in year 2005 Of JSCL is find to be 39% correlated with the

57

RISK of Habib Securities in year 2005.The table shows that RISK in year 2005 Of JSCL is find to be -8% correlated with the RISK of Indus Dying in year 2005. The table shows that RISK in year 2005 Of OGDC is find to be 34% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 Of OGDC is find to be 25% correlated with the RISK of Attock Cement in year 2005. The table shows that RISK in year 2005 Of OGDC is find to be -50% correlated with the RISK of Atlas Battery in year 2005. The table shows that RISK in year 2005 Of OGDC is find to be 19% correlated with the RISK of Fauji Fertilizer in year 2005. The table shows that RISK in year 2005 Of OGDC is find to be 69% correlated with the RISK of Habib Securities in year 2005. The table shows that RISK in year 2005 Of OGDC is find to be -74% correlated with the RISK of Indus Dying in year 2005. The table shows that RISK in year 2005 Of OGDC is find to be 25% correlated with the RISK of JSCL in year 2005. The table shows that RISK in year 2005 Of Pak Refinery is find to be 42% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 Of Pak Refinery is find to be 17% correlated with the RISK of Attock Cement in year 2005. The table shows that RISK in year 2005 Of Pak Refinery is find to be 4% correlated with the RISK of Atlas Battery in year 2005 The table shows that RISK in year 2005 Of Pak Refinery is find to be 5% correlated with the RISK of Fauji Fertilizer in year 2005. The table shows that RISK in year 2005 Of Pak Refinery is find to be -7% correlated with the RISK of Habib Securities in year 2005. The table shows that RISK in year 2005 Of Pak Refinery is find to be 18% correlated with the RISK of Indus Dying in year 2005. The table shows that RISK in year 2005 Of Pak Refinery is find to be -39% correlated with the RISK of JSCL in year 2005. The table shows that RISK in year 2005 Of Pak Refinery is find to be -37% correlated with the RISK of OGDC in year 2005. The table shows that RISK in year 2005 Of PSO is find to be 31% correlated with the RISK of Bank AlFalah in year 2005. The table shows that RISK in year 2005 Of PSO is find to be 46% correlated with the RISK of Attock Cement in year 2005.The table shows that RISK in year 2005 Of PSO is find to be -25% correlated with the RISK

58

of Atlas Battery in year 2005. The table shows that RISK in year 2005 Of PSO is find to be 46% correlated with the RISK of Fauji Fertilizer in year 2005. The table shows that RISK in year 2005 Of PSO is find to be -64% correlated with the RISK of Indus Dying in year 2005.The table shows that RISK in year 2005 Of PSO is find to be 25% correlated with the RISK of JSCL in year 2005. The table shows that RISK in year 2005 Of PSO is find to be 89% correlated with the RISK of OGDC in year 2005.The table shows that RISK in year 2005 Of PSO is find to be -47% correlated with the RISK of Pak Refinery in year 2005. Table 4.20

Explanation: It shows that RISK in year 2006 of Attock Cement is found to be -52% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 of Atlas Battery is find to be 27% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 of Atlas Battery is find to be 22% correlated with the RISK of Attock Cement in year 2006. The table shows that RISK in year 2006 of Fauji Fertilizer is find to be -9% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 of Fauji Fertilizer is find to be 43% correlated with the RISK of Attock Cement in year 2006. The table shows that RISK in year 2006 of Fauji Fertilizer is find to be 32% correlated with the RISK of Atlas Battery in year 2006. The table shows that RISK in year 2006 of Habib Securities is find to be 25% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in

59

year 2006 of Habib Securities is find to be 59% correlated with the RISK of Attock Cement in year 2006. The table shows that RISK in year 2006 of Habib Securities is find to be 24% correlated with the RISK of Atlas Battery in year 2006. The table shows that RISK in year 2006 of Habib Securities is find to be 66% correlated with the RISK of Fauji Fertilizer in year 2006. The table shows that RISK in year 2006 Of Indus Dying is find to be -7% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 Of Indus Dying is find to be 59% correlated with the RISK of Attock Cement in year 2006. The table shows that RISK in year 2006 Of Indus Dying is find to be 31% correlated with the RISK of Atlas Battery in year 2006. The table shows that RISK in year 2006 Of Indus Dying is find to be 56% correlated with the RISK of Fauji Fertilizer in year 2006. The table shows that RISK in year 2006 Of Indus Dying is find to be 67% correlated with the RISK of Habib Securities in year 2006. The table shows that RISK in year 2006 Of JSCL is find to be -2% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 Of JSCL is find to be 79% correlated with the RISK of Attock Cement in year 2006.The table shows that RISK in year 2006 Of JSCL is find to be 38% correlated with the RISK of Atlas Battery in year 2006.The table shows that RISK in year 2006 Of JSCL is find to be 38% correlated with the RISK of Fauji Fertilizer in year 2006.The table shows that RISK in year 2006 Of JSCL is find to be 62% correlated with the RISK of Habib Securities in year 2006.The table shows that RISK in year 2006 Of JSCL is find to be 44% correlated with the RISK of Indus Dying in year 2006. The table shows that RISK in year 2006 Of OGDC is find to be 37% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 Of OGDC is find to be 7% correlated with the RISK of Attock Cement in year 2006. The table shows that RISK in year 2006 Of OGDC is find to be -45% correlated with the RISK of Atlas Battery in year 2006. The table shows that RISK in year 2006 Of OGDC is find to be 74% correlated with the RISK of Fauji Fertilizer in year 2006. The table shows that RISK in year 2006 Of OGDC is find to be 63% correlated with the RISK of Habib Securities in year 2006. The table shows that RISK in year 2006

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Of OGDC is find to be -36% correlated with the RISK of Indus Dying in year 2006. The table shows that RISK in year 2006 Of OGDC is find to be 19% correlated with the RISK of JSCL in year 2006. The table shows that RISK in year 2006 Of Pak Refinery is find to be -10% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 Of Pak Refinery is find to be 45% correlated with the RISK of Attock Cement in year 2006. The table shows that RISK in year 2006 Of Pak Refinery is find to be -7% correlated with the RISK of Atlas Battery in year 2006 The table shows that RISK in year 2006 Of Pak Refinery is find to be 71% correlated with the RISK of Fauji Fertilizer in year 2006. The table shows that RISK in year 2006 Of Pak Refinery is find to be 68% correlated with the RISK of Habib Securities in year 2006. The table shows that RISK in year 2006 Of Pak Refinery is find to be 80% correlated with the RISK of Indus Dying in year 2006. The table shows that RISK in year 2006 Of Pak Refinery is find to be 24% correlated with the RISK of JSCL in year 2006. The table shows that RISK in year 2006 Of Pak Refinery is find to be 51% correlated with the RISK of OGDC in year 2006. The table shows that RISK in year 2006 Of PSO is find to be 10% correlated with the RISK of Bank AlFalah in year 2006. The table shows that RISK in year 2006 Of PSO is find to be 19% correlated with the RISK of Attock Cement in year 2006.The table shows that RISK in year 2006 Of PSO is find to be -58% correlated with the RISK of Atlas Battery in year 2006. The table shows that RISK in year 2006 Of PSO is find to be 83% correlated with the RISK of Fauji Fertilizer in year 2006. The table shows that RISK in year 2006 Of PSO is find to be 45% correlated with the RISK of Habib Securities in year 2006.The table shows that RISK in year 2006 Of PSO is find to be 34% correlated with the RISK of Indus Dying in year 2006.The table shows that RISK in year 2006 Of PSO is find to be 30% correlated with the RISK of JSCL in year 2006. The table shows that RISK in year 2006 Of PSO is find to be 90% correlated with the RISK of OGDC in year 2006.The table shows that RISK in year 2006 Of PSO is find to be 50% correlated with the RISK of Pak Refinery in year 2006.

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Table 4.21

Explanation: It shows that RISK in year 2007 of Attock Cement is found to be -19% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 of Atlas Battery is find to be 76% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 of Atlas Battery is find to be -41% correlated with the RISK of Attock Cement in year 2007. The table shows that RISK in year 2007 of Fauji Fertilizer is find to be 34% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 of Fauji Fertilizer is find to be 4% correlated with the RISK of Attock Cement in year 2007. The table shows that RISK in year 2007 of Fauji Fertilizer is find to be -20% correlated with the RISK of Atlas Battery in year 2007. The table shows that RISK in year 2007 of Habib Securities is find to be 65% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 of Habib Securities is find to be 30% correlated with the RISK of Attock Cement in year 2007. The table shows that RISK in year 2007 of Habib Securities is find to be 14% correlated with the RISK of Atlas Battery in year 2007. The table shows that RISK in year 2007 of Habib Securities is find to be 59% correlated with the RISK of Fauji Fertilizer in year 2007.

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The table shows that RISK in year 2007 Of Indus Dying is find to be -44% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 Of Indus Dying is find to be 24% correlated with the RISK of Attock Cement in year 2007. The table shows that RISK in year 2007 Of Indus Dying is find to be -69% correlated with the RISK of Atlas Battery in year 2007. The table shows that RISK in year 2007 Of Indus Dying is find to be 36% correlated with the RISK of Fauji Fertilizer in year 2007. The table shows that RISK in year 2007 Of Indus Dying is find to be -14% correlated with the RISK of Habib Securities in year 2007. The table shows that RISK in year 2007 Of JSCL is find to be 18% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 Of JSCL is find to be 21% correlated with the RISK of Attock Cement in year 2007.The table shows that RISK in year 2007 Of JSCL is find to be 51% correlated with the RISK of Atlas Battery in year 2007.The table shows that RISK in year 2007 Of JSCL is find to be -17% correlated with the RISK of Fauji Fertilizer in year 2007.The table shows that RISK in year 2007 Of JSCL is find to be 8% correlated with the RISK of Habib Securities in year 2007.The table shows that RISK in year 2007 Of JSCL is find to be -41% correlated with the RISK of Indus Dying in year 2007. The table shows that RISK in year 2007 Of OGDC is find to be 56% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 Of OGDC is find to be -45% correlated with the RISK of Attock Cement in year 2007. The table shows that RISK in year 2007 Of OGDC is find to be 32% correlated with the RISK of Atlas Battery in year 2007. The table shows that RISK in year 2007 Of OGDC is find to be 71% correlated with the RISK of Fauji Fertilizer in year 2007. The table shows that RISK in year 2007 Of OGDC is find to be 51% correlated with the RISK of Habib Securities in year 2007. The table shows that RISK in year 2007 Of OGDC is find to be -28% correlated with the RISK of Indus Dying in year 2007. The table shows that RISK in year 2007 Of OGDC is find to be 13% correlated with the RISK of JSCL in year 2007. The table shows that RISK in year 2007 Of Pak Refinery is find to be 84% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007

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Of Pak Refinery is find to be 9% correlated with the RISK of Attock Cement in year 2007. The table shows that RISK in year 2007 Of Pak Refinery is find to be 55% correlated with the RISK of Atlas Battery in year 2007 The table shows that RISK in year 2007 Of Pak Refinery is find to be 55% correlated with the RISK of Fauji Fertilizer in year 2007. The table shows that RISK in year 2007 Of Pak Refinery is find to be 81% correlated with the RISK of Habib Securities in year 2007. The table shows that RISK in year 2007 Of Pak Refinery is find to be -21% correlated with the RISK of Indus Dying in year 2007. The table shows that RISK in year 2007 Of Pak Refinery is find to be 44% correlated with the RISK of JSCL in year 2007. The table shows that RISK in year 2007 Of Pak Refinery is find to be 62% correlated with the RISK of OGDC in year 2007. The table shows that RISK in year 2007 Of PSO is find to be 64% correlated with the RISK of Bank AlFalah in year 2007. The table shows that RISK in year 2007 Of PSO is find to be 18% correlated with the RISK of Attock Cement in year 2007.The table shows that RISK in year 2007 Of PSO is find to be 24% correlated with the RISK of Atlas Battery in year 2007. The table shows that RISK in year 2007 Of PSO is find to be 82% correlated with the RISK of Fauji Fertilizer in year 2007. The table shows that RISK in year 2007 Of PSO is find to be 70% correlated with the RISK of Habib Securities in year 2007.The table shows that RISK in year 2007 Of PSO is find to be -7% correlated with the RISK of Indus Dying in year 2007.The table shows that RISK in year 2007 Of PSO is find to be 30% correlated with the RISK of JSCL in year 2007. The table shows that RISK in year 2007 Of PSO is find to be 73% correlated with the RISK of OGDC in year 2007.The table shows that RISK in year 2007 Of PSO is find to be 83% correlated with the RISK of Pak Refinery in year 2007.

Table 4.22

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Explanation: It shows that RISK in year 2008 of Attock Cement is found to be -9% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 of Atlas Battery is find to be 29% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 of Atlas Battery is find to be -20% correlated with the RISK of Attock Cement in year 2008. The table shows that RISK in year 2008 of Fauji Fertilizer is find to be -30% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 of Fauji Fertilizer is find to be 3% correlated with the RISK of Attock Cement in year 2008. The table shows that RISK in year 2008 of Fauji Fertilizer is find to be 11% correlated with the RISK of Atlas Battery in year 2008. The table shows that RISK in year 2008 of Habib Securities is find to be 26% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 of Habib Securities is find to be 53% correlated with the RISK of Attock Cement in year 2008. The table shows that RISK in year 2008 of Habib Securities is find to be 16% correlated with the RISK of Atlas Battery in year 2008. The table shows that RISK in year 2008 of Habib Securities is find to be -12% correlated with the RISK of Fauji Fertilizer in year 2008. The table shows that RISK in year 2008 Of Indus Dying is find to be 12% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008

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Of Indus Dying is find to be 43% correlated with the RISK of Attock Cement in year 2008. The table shows that RISK in year 2008 Of Indus Dying is find to be -32% correlated with the RISK of Atlas Battery in year 2008. The table shows that RISK in year 2008 Of Indus Dying is find to be 10% correlated with the RISK of Fauji Fertilizer in year 2008. The table shows that RISK in year 2008 Of Indus Dying is find to be 21% correlated with the RISK of Habib Securities in year 2008. The table shows that RISK in year 2008 Of JSCL is find to be -23% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 Of JSCL is find to be -1% correlated with the RISK of Attock Cement in year 2008.The table shows that RISK in year 2008 Of JSCL is find to be 31% correlated with the RISK of Atlas Battery in year 2008.The table shows that RISK in year 2008 Of JSCL is find to be 28% correlated with the RISK of Fauji Fertilizer in year 2008.The table shows that RISK in year 2008 Of JSCL is find to be -2% correlated with the RISK of Habib Securities in year 2008.The table shows that RISK in year 2008 Of JSCL is find to be -28% correlated with the RISK of Indus Dying in year 2008. The table shows that RISK in year 2008 Of OGDC is find to be -26% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 Of OGDC is find to be 28% correlated with the RISK of Attock Cement in year 2008. The table shows that RISK in year 2008 Of OGDC is find to be -25% correlated with the RISK of Atlas Battery in year 2008. The table shows that RISK in year 2008 Of OGDC is find to be -19% correlated with the RISK of Fauji Fertilizer in year 2008. The table shows that RISK in year 2008 Of OGDC is find to be 55% correlated with the RISK of Habib Securities in year 2008. The table shows that RISK in year 2008 Of OGDC is find to be --7% correlated with the RISK of Indus Dying in year 2008. The table shows that RISK in year 2008 Of OGDC is find to be 11% correlated with the RISK of JSCL in year 2008. The table shows that RISK in year 2008 Of Pak Refinery is find to be 13% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 Of Pak Refinery is find to be -29% correlated with the RISK of Attock Cement in year 2008. The table shows that RISK in year 2008 Of Pak Refinery is find to be

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39% correlated with the RISK of Atlas Battery in year 2008 The table shows that RISK in year 2008 Of Pak Refinery is find to be -2% correlated with the RISK of Fauji Fertilizer in year 2008. The table shows that RISK in year 2008 Of Pak Refinery is find to be -9% correlated with the RISK of Habib Securities in year 2008. The table shows that RISK in year 2008 Of Pak Refinery is find to be 24% correlated with the RISK of Indus Dying in year 2008. The table shows that RISK in year 2008 Of Pak Refinery is find to be 18% correlated with the RISK of JSCL in year 2008. The table shows that RISK in year 2008 Of Pak Refinery is find to be 7% correlated with the RISK of OGDC in year 2008. The table shows that RISK in year 2008 Of PSO is find to be 11% correlated with the RISK of Bank AlFalah in year 2008. The table shows that RISK in year 2008 Of PSO is find to be 4% correlated with the RISK of Attock Cement in year 2008.The table shows that RISK in year 2008 Of PSO is find to be -16% correlated with the RISK of Atlas Battery in year 2008. The table shows that RISK in year 2008 Of PSO is find to be -62% correlated with the RISK of Fauji Fertilizer in year 2008. The table shows that RISK in year 2008 Of PSO is find to be 23% correlated with the RISK of Habib Securities in year 2008.The table shows that RISK in year 2008 Of PSO is find to be 28% correlated with the RISK of Indus Dying in year 2008.The table shows that RISK in year 2008 Of PSO is find to be -21% correlated with the RISK of JSCL in year 2008. The table shows that RISK in year 2008 Of PSO is find to be 11% correlated with the RISK of OGDC in year 2008.The table shows that RISK in year 2008 Of PSO is find to be 30% correlated with the RISK of Pak Refinery in year 2008.

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Chapter V
Conclusion and Recommendations 5.1 Conclusion In this study we make several contributions to our understanding of how investors can minimize their risk and maximize their returns. In this study, the return based performance of the companies of financial sector of Pakistan in stock market is examined. The risky ness of each stock of financial sector is measured to analyze whether small cap stocks of financial sector of Pakistan are more volatile or not as compare to large cap stocks. This is done by the construction of a manager universe benchmark and volatility of each stock from its benchmark is analyzed. For this analysis of variation, various tools are used including F- TEST, R-Squared statistics, Durbin Watson Statistics, Pooled Regression Test, Test for Equality of Means Between series, Correlation. In our test, we found that the coefficient of Risk, is positive but the statistically it is significant. Thus the test has been rejected. In our case the R- Squared are 13%, which is not a good sign. In our case Durbin Watson statistics, is 1.71, above 1.5, which implies that there are very minor chances of error of auto correlation. While applying the Test for Equality of Means between Series, we find out that, all returns of 10 listed companies at KSE, all the returns of 2005, 2006,2007,2008,2009 are equal. While applying the Test for Equality of Means Between Series, we find out that , most of listed companies at KSE , risks , al the risks of 2005,2006,2007,2008,2009 are not equal.

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These results supported the argument that small cap stocks of financial sector of Pakistan are more volatile as compared to large cap stocks which means that small cap stocks are more risky as compared to larger cap stocks. The long term average return of large cap stocks is higher than the average return of small cap stocks. These results lead me to recommend that the investors who want to invest for long period of time pursuing minimum risk and high return, should invest in large cap stocks while those investors who want to invest for shorter period of time and are willing to take risk are recommended to invest in small cap stocks, they will be able to get higher returns as compared to large cap stocks. So, the crux is that large cap stocks are suitable for long term investments while small cap stocks are suitable for short term investments. 5.2 Recommendations 1. Further researchers should be made on the topic, for the sake of continuing the working of this research. 2. Purchase of common stock should be done when a company is up-grading itself: as it is the time when the companys share price is lower and its future earnings will be more. 3. Decisions for stock purchase should not be made by just considering the market value of equity: as the companys other internal and external factors have high significance in determining stock returns. 4. If annual sales of a company are high, the wrong decision regarding its stock purchase should not be made. 5. A company high variation in the market value of equity should not be considered good for investment.

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6. If a Company is having negative correlation of Market Value of Equity with EPS, it should be avoided for investment, because it may have bad future prospects. 7. Software should be made which would be an easy predictor of stock returns on the basis of Market Value of Equity and other economic factors.

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Fong, L Vasicek. (2000), Portfolio Selection and Asset Pricing Models, Journal of Finance, 55, 179-224. Peres-Burre G., and A., Giot, (2004), Firm Size and Cyclical Variations in Stock Returns, Journal of Finance, 55, 1229-1262. Reilly and Brown (2007), Investment analysis and portfolio management, Security market indicator series, 7th edition, chapter 5, pp. 154-5. Reilly and Brown (2007), Investment analysis and portfolio management, Evaluation of portfolio performance, 7th edition, chapter 26, pp. 1109-1115. Siegel, F. Andrew (2004), Practical business statistics, ANOVA, testing for the differences among many samples, 5th edition, McGraw Hill Publications, Australia, pp.668-692 & pp.701-703. Siegel, F. Andrew (2004), Practical business statistics, Variability: dealing with diversity, 5th edition, McGraw Hill Publications, Australia, pp. 64-70 &145148. Sharp (1964), the international pricing of risk: an empirical investigation of the world capital market structure, Journal of Finance29, 365-378. , B.Linter. (1965), An empirical test of the alternative hypotheses of national and international pricing of risky assets, Journal of Finance 32, 493-502. Lew, E. Bassalou (2000), Introduction to Statistics, Distribution of random variables, 3rd edition, Macmillan Publishing Co. New York, chapter 5, pp. 133-145. Moss, B. L. (1966), On the Comparison of Several Mean Values: An Alternative Approach, Biometrika, 38, 330-336.

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