Stock Market Analysis

An Analysis of Stock Market Behavior: Risk, Return, and Stock Market Volatility In 1
Pakistan (KSE).
TABLE OF CONTENTS
Chapter #1
Introduction and Background
1.1 Objective of the study 07

1.2 Problem Statement 07
1.3 Theoretical Framework 08
1.4 Significance of the Study 09
1.5 Scope of the Study 10
Chapter #2
Literature Review
2.1 Empirical Evidence from Developed Markets 11

2.2 Pakistani Equity Market 16
Chapter # 3
Research Methodology and Design

3.1 Type of the Study 19
3.2 Source and Type of Data 19
3.3 Statistical Tools 20
Javed Mehboob (MBA)

Final Research Report
Pakistan (KSE).
Chapter # 4
Analysis and Interpretation of Data
4.1 Risk and Return Analysis 21
Conclusion 59
References 60
Table (4.1) 21
Table (4.2) 26
Table (4.3) 30
Table (4.4) 34
Table (4.5) 38
Table (4.6) 42
Table (4.7) 44
Figure (4.1.1) 46
Figure (4.1.2) 47
Figure (4.1.3) 48
Figure (4.1.4) 49
Figure (4.1.5) 50
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CHAPTER # 1
INTRODUCTION AND BACKGROUND
Stock markets play an important role in facilitating productive investment
and thereby promoting economic growth. Capital markets can play a crucial
role in mobilizing domestic and foreign resources, and channeling them to the
most productive medium and long-term uses. Since these funds are not
intermediated, resource allocation should be more efficient.
The existence of an efficient equity market, an integral part of financial
system, is a pre-requisite for the smooth functioning of an economy. The equity
markets cater the needs of finances for the private investments and public sector
development programs and play an important role in mobilizing institutional and
individual saving and channeling these to the productive activities of the
economy. An efficient equity market therefore helps in expanding the
commercial and industrial base, thereby stimulates economic activity, the end of
which is increase in job opportunities and per capita income. Stock markets are
referred to as foundations to the national economy. The reason is that, for strong
economic growth and development; the existence of a vibrant equity market is
the basic pre-requisite. In essence stock markets serve the purpose of supporting
and complementing the productive activities of the economy by performing
functions regarding the mobilization and allocation of savings for the long term
funding exigencies of business and industry. Thus stock markets help in
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expanding the commercial and industrial base and a result creating job
opportunities and increasing national output and per capita income.
Stock exchanges also provide necessary stimulant to institutions working
for promoting virtue of thrift, in carrying out their aims and objectives that are
mainly to attract savings and to utilize them profitably for industrial
development. With these actions of the capital market the base of industrial
finance has greatly widened and a large number of small investors are induced to
put their savings in equity investment. Thus it is obvious that for such a purpose
the existence of the stock markets become indispensable.
At the time of independence, there were only a few industries in Pakistan
and the related institutional framework was weak. A few insurance companies
and the managing agency systems were the only platform for trade in funds.
Commercial banks were mostly engaged themselves in financing commercial
operations. The establishment of State bank of Pakistan in 1948 as the central
bank of the country laid foundation for an organized money market. The need to
establish a stock exchange was felt at the time of independence and the
government had taken steps to setup a stock exchange at Karachi in September
18, 1947, which was converted into a registered company limited by guarantee
on March 10, 1949. At that time it had 90 members and 13 listed companies with
paid up capital of Rs. 108 million. Though there were two other stock markets,
later established in Pakistan at Lahore and Islamabad in 1970 and 1992
respectively. The Karachi Stock Exchange remains the main center of activity
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where 75-80 % of the current trading takes place. Most of the companies Lahore
and Islamabad stock exchanges are also listed at Karachi stock exchange. The
turn over of Karachi stock exchange is fairly contributed by these two smaller
but fast growing regional stock exchanges whose members send the unexecuted
orders at their exchange to the Karachi stock exchange floor.
The main equity market in Pakistan is Karachi Stock Exchange (KSE), has been
in operation for almost half of century. It has not been an active market until the
beginning of 1991. During the year 1994, frequent crashes of the stock market
show that the KSE is rapidly converting into a volatile market. Heavy
fluctuations in stock prices are not an unusual phenomena however, such
fluctuations have been observed at almost all big and small exchanges of the
world. The major fluctuation has been observed in year 2001-2002 is after the
11 t h September event. The stock prices have been very frequently fluctuate, and
the stock market also affected by the 10 t h October 2002 Elections. Pakistan had
nuclear test on May 28, 1998 that has significant impact on KSE 100 and it
declines from 1040.19 to 789.15 and trading volume from Rs 16 million to Rs 9
Million. The recent attack of USA on Iraq have also affect the Pakistani stock
markets in March 2003.The frequent fluctuations in the stock market have been
occurred due to uncertainty. Focusing on the reasons for such fluctuations is
intrusive, and likely to have important implications. Nevertheless, the KSE
offers an interesting set of circumstances to test the nature of market volatility.
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Pakistan used number of measures in order to develop its capital markets,
the major measures include economic liberalization, regulatory changes in
foreign exchange controls, repatriation of profits and privatization of public
sector enterprises and, most importantly, the opening of the equity market to
international investors during 1991. However, the equity market in Pakistan is
likely to regain its importance in the near future, especially in the light of major
developments. Like, following the loan agreement with international monetary
fund (IMF), Pakistan has been able to receive aid inflows from many sources,
such as World Bank, Asian Development Bank and Islamic Development Bank
and debt rescheduling arrangements are in the process.
It has been observed that in the past few years the opening of the
Pakistani equity market to international investors has exposed it to frequent
crashes, which indicated that the KSE, LSE, and ISE are highly volatile markets.
The fluctuations in stock prices are usual phenomena and are daily observed in
almost all stock markets of the world, small as well as large.
The average investors are risk averse, his/her objective is to maximize
return with the minimum risk. Thus, given the rate of return, the stock markets
that are relatively less volatile, are likely to attract more investment. However,
what matters in the individual’s investment decision is the perception rather
than realization; past experience matters to the extent that it influences future
expectations about return and volatility. In other words, while making their
investment decision investors consider expected return and expected volatility
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conditional upon the available information. Thus the stock markets activities are
usually governed by information. While the systematically disseminated
information determines the ling-term trend and underlying strength of the
market, the information that comes as a surprise event—the so called good or
bad news- cause shocks to the stock markets and result in volatility. The ways
investors interpret this news are crucial in forming expectations about the future
course of events in the stock markets.
One relevant question is always remained on the forefront of financial
theory, why the investors take risk of volatility when a wide range of “safe
assets” exist. There is also a straight quotation, that high risk leads high return.
A possible answer is given by the postulate that returns on stocks include a
premium for risk that provides a sufficient incentive to take risk. This postulate
has been known as Capital Asset Pricing Model or CAMP. Although this
postulate has been applied time and again on almost all the major stock markets
in the world, it has not been tested thoroughly for the KSE.
1.1 OBJECTIVE OF THE STUDY
The study is undertaken to address the following issues pertaining to
activities at the KSE.
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 To verify how risk affects the selected stock prices?
 To verify the relationship between risk and return of selected
stocks?
 To verify nature of volatility in selected stocks, and how volatility
affects the selected stock Returns?
1.2 PROBLEM STATEMENT
Literature describes that there is strong relation between risk and return,
and they have great impact on stock return, sometimes this impact is positive
and sometimes it is negative. It will be verified that how the risk affects the
stock prices. Risk and return both are always be with stock market and have very
strong relation. This report will verify the relationship between risk and return.
One relevant question is always remained on the forefront of financial theory,
why the investors take risk of volatility when a wide range of “safe assets”
exist. This report studies the nature of volatility on the stock return and to
verify how the volatility affects the stock return. It is very helpful for the
individual investor to know how the stock market behaves and how the risk
affects the stock prices. This research report is very beneficial for the individual
investor to know that how volatility affects stock return.
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1.3 THEORATICAL FRAMEWORK
The aim of this section is to define the relationship between the dependent
and the independent variables. In this particular study, the dependent variable is
return while the independent variable is risk.
Fama and French in (June 1992): They tested stock returns over the 1963-
1990 period, they found that the size and market-to-book-value variables are
powerful predictors of average stock returns. The risk and return have great
impact on stock prices. This effect can be either an increase or decrease in
stock prices. This impact may be the systematic risk factors or due to the
unsystematic risk factors. The impact of risk on return is not a new phenomenon.
The risk factor can be minimized but it cannot be eliminated entirely. Risk and
return are interlinked, higher the risk depicts higher the return and lower the
risk represents lower return. Farid and Ashraf (1995): describes that there was a
strong positive correlation among the volume of trading, expected rate of return
and volatility of stock prices. Uncertainty leads volatility. Uncertainty and
volatility have direct relation, if the environment is highly uncertain than it
leads high volatile market. Volatility is measured by the Beta. Fama and French
(June 1998): describes that high beta describes that the firm is risky. The
measure for this non-diversifiable risk is the beta coefficient -- which measures
the volatility of an asset's returns compared to volatility of overall market
returns. The higher the potential return, the higher the potential loss may be, and
that negative returns are possible for all investment types. Though the literature
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on stock market prices behavior elaborate variety of issues but this
review/research is restricted to some theoretical issues about, taking as top five
active companies (KSE) by taking monthly data of last five years data and try to
interpret and elaborate the relationship between risk and return. Hussain (1997)
examined relationship between retunes and stock market volatility for Pakistani
equity market using daily data. Khilji (1993) investigated the time series
behavior of monthly stock returns in Pakistan over the period July 1981 to June
1992.
It is true that volatility affects the market. The persistence in volatility is
not surprising: stock market volatility should depend on the overall health of the
economy, and real economic variables themselves tend to display persistence.
Ahmed and Rosser (1995): describes that volatile market prices also reflect
optimism regarding future economic development. Stock market volatility tends
to be persistent; that is, periods of high volatility as well as low volatility tend
to last for months. In particular, periods of high volatility tend to occur when
stock prices are falling and during recessions. Stock market volatility also is
positively related to volatility in economic variables, such as inflation,
industrial production, and debt levels in the corporate sector.
1.4 SIGNIFICANCE OF THE STUDY
This study contemplates and elaborates the relationship between risk and
return. This study is extremely significant for the elaboration of the relationship
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between risk and return and this study is also very helpful to know that how the
risk affect the stock prices. This study also defines the nature of volatility at
KSE. It describes how the volatility affects the stock return.
1.5 SCOPE OF THE STUDY
This study is carried out to cover following aspects:
 This study is based on secondary data.
 The quantitative analysis has been carried out on the basis of top 5 active
companies, including PTCL, PSO, EC, FF, and MCB.
 The monthly data is used for analysis of last 5 years.
 300 observations have been analyzed in this report.
 There are three stock exchanges in Pakistan but our study is limited to
Karachi Stock Exchange and All the analysis are based on Karachi Stock
Exchange.
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CHAPTER # 2
LITERATURE REVIEW
2.1 EMPIRICAL EVIDENCE FROM DEVELOPED MARKETS
The predictability of stock returns is studied using the framework of
Ferson and Harvey 1993. They used capital asset pricing model where risk
premium and risk sensitivities are conditioned on a range of financial
information variables. In particular, they studied that the effect of the return
interval on the predictability of short-term stock returns. Using daily, weekly,
and monthly returns. They found that the predictability of returns increases with
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the length of return interval, but so does the power of the capital asset pricing
model to explain the predictability. They reported that the time variation in risk
premium accounts for most of the predictability. However, the results show also
there is a positive relationship between beta and risk premium which seems to
increase for smaller companies.
French, Schwert, and Stambaught in December 1986, examined the relation
between stock returns and stock market volatility. They found the evidence that
the expected market risk premium (the expected return on a stock portfolio
minus the Treasury bill yield) is positively related to the predictable volatility
of stock returns. There is also evidence that unexpected stock market returns are
negatively related to the unexpected change in the volatility of stock returns.
This negative relation provides indirect evidence of a positive relation between
expected risk premiums and volatility.
Fama and French in June 1992, they looked empirically at the relationship
among common stock return and a firm’s market capitalization (size), market- to-
book-value ratio, and beta. They tested stock returns over the 1963-1990 period,
they found that the size and market-to-book-value variables are powerful
predictors of average stock returns. When these variables were used first in a
regression analysis, the added beta variable was found to have little additional
explanatory power. They suggested that the firm’s market value and market- to-
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book-value ratio are the appropriate proxies for risk, and also suggested that
beta is reasonable measure for risk.
Vaihekoshi has undertaken the study in 1996. Equity and government bond
indexes as risk factors have been used in this research paper. The approach
allows for the time-varying risk-premium, risk-adjusted returns, risk
sensitivities, and residual variances. Betas, risk-adjusted returns, and residual
variances are allowed to vary linearly with the conditioning information
variables: a short-term interest rate level, a measure of interest rate volatility, a
measure of interest rate term structure, a measure of currency market volatility.
Tests are done using weekly returns on seven size, industry and leverage ranked
portfolios. The sample period is 1987 to 1995. The results show some evidence
that the bond factor is relevant to the pricing of the stocks. The results also
support the idea that the conditioning variables can be used to predict the time-
variation in betas.
This study has been done by Steven in June 2000, stated that the emerging
stock markets represent an alternative investment opportunity for investors
looking to diversify their portfolio. These markets have the potential to yield
high returns, but do so at a high risk. This paper analyzes the performance of
selected emerging stock markets last five years, relative to the performance of
the S&P 500 standard index. The emerging markets analyzed are China,
Pakistan, South Africa, Egypt, Hungary, Czech Republic, and Argentina, as
represented by the MSCI index for each individual national market. These
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markets provide a cross section of the global emerging marketplace,
representing Asia, Africa, Eastern Europe, and Latin America. The risks,
returns, and correlations of each of these markets are compared against the US
market, and Jensen values are calculated to determine if they outperform the
S&P 500. This data should help investors in achieving the goal of international
asset allocation.
This paper has been done by Ahmet , Nusret in 1999. In this paper they
test the overreaction hypothesis in seven industrialized countries using the
methodology suggested by Conrad and Kaul. They then try to determine whether
price or size is significant in explaining holding period to determine whether
price or size is significant in explaining holding period returns to loser and
winner portfolios. Finally, they evaluate the performance of arbitrage portfolios
based on price and size, and compare the findings to the performance of loser-
winner arbitrage portfolios. Moreover, two points must be considered in
interpreting these findings; first, as Loughran and Ritter (1996) observed when
portfolios are formed on a single variable like past returns, price or size, the
impact of any of these variables will probably be overstated. Secondly, the
returns to some portfolios might be accounted, at least in part, by higher risk.
This study has been carried out by Donald and Fisher. The purpose of this
study is to investigate the price behavior of unseasoned new issues of common
stock immediately following the offering and over the subsequent year during
the period 1969-70. It widely alleged that under writers may attempt to “under
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price” new issues of common stock so that the initial offering will be fully
subscribed and rise in price subsequent to issue. The difference between offering
price and subsequent market price constitute a “rent” that is distributed by the
underwriter to initial purchase of the stock. It is hypothesized that this rent. In
this study a number of hypotheses, based on the efficient market model, were
tested with data on 142 unseasoned new issues of common stock offered in the
first quarter 1969. The findings indicated significantly large returns for the
initial subscribers, adjusted for market effects, in the first week following the
offering.
Fama and French in June 1998 studied the return performance of all no
financial firms traded on the NYSE, AMEX and NASDAQ over the period from
1962 to 1990. They found that the market value and book to market ratio were
important predictors of average returns, and that the beta of the stock was not a
significant predictor. It is important to stress that it is not possible to disprove
the notion of an efficient market through empirical tests. The interpretation of
these findings is that they are finding a more accurate representation of the risk
premium. It is not unreasonable to suppose that small firms are more risky than
large firms.
In addition, Harris and Marston suggest that the book to market ratio can
be considered as a composite indicator of the beta of the stock and of its
expected growth. They argue that a firm will have a high book to market (i.e.
strong value characteristics) for two reasons: because the firm is risky (high
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beta) or because the firm has poor growth prospects. The statistical results,
according to this view, are not telling us anything about the efficiency of the
market; they are simply showing us a methodology for more accurately
estimating the risk factors.
This study has been done by David and Shiller, in 1990, express that the
excess volatility is an accepted phenomenon and cannot be adequately explained
by fluctuations in real interest rates. In this essay the author has shown that it is
more likely that capital gains or losses can be attributed to the actions of
individual investors, rather than movements in ex-post values of which the
ordinary investor would have very little knowledge. The author would postulate
that the theory is only an extreme of certain limited markets. While it does hold
to a certain extent in all markets, it is not the full explanation. The excess
volatility which has been examined has been adequately explained by the theory
of popular models, seems to be totally logical in its assumptions and is well
supported by several texts as the author has demonstrated. For this reason one's
answer to the question posed by this essay 'Stock Market Volatility -
Psychological Phenomenon?' would be that volatility is a function of both
economic variables and psychological factors. The assumption though that the
economic variables should be concentrated on to the detriment of research on
psychological factors.
William in May-June 1990, describe in their study that, Investors,
regulators, brokers, dealers, and the press have all expressed concern over the
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level of stock market volatility. But the perception that prices move a lot -- and
have been moving a lot more in recent years, is in part merely a reflection of the
historically high levels of popular indexes. The drop in stock prices on October
13, 1989, while large in terms of a point decline -- was not even among the 25
worst days in NYSE history in terms of percentage changes. While a 6 per cent
drop in prices is not inconsequential, neither is it a rare event when considered
within the context of the behavior of stock returns over the 1802-1989 periods.
Apart from October 1987 and October 1989, volatility was not particularly high
in the 1980s. Moreover, the growth in stock index futures and options trading
has not been associated with an upward trend in stock volatility. There is little
evidence that computerized trading per se increases volatility, except perhaps
within the trading day. The evidence so far is inconclusive as to whether trading
halts or circuit-breakers can reduce volatility in a beneficial way. Even if
circuit- breakers can reduce volatility, are the benefits of stability greater than
the cost of inefficiency created by the trading halt?
2.2 PAKISTANI EQUITY MARKET
In the Pakistan, following studies and researches has been done by the
researchers to analyze and elaborate the stock market behavior.
Study has been done by Hussain and Uppal 1998, examined the
distributional characteristics of Pakistani equity market as well as the effects of
the opening of market to international investors. Using daily data on 36
companies, 8 section indices, and the market index Jan 1, 1989 to Dec 30, 1993
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various prepositions regarding stock return behavior was examined. The analysis
shows significant returns in the market and that stock returns in the Pakistani
market cannot be characterized by normal distribution. The study suggested that
both the average return and volatility increased significantly when the market
was opened but after one year dropped back.
In another study Hussain 1997, examined the day of the week effect in
Pakistani equity market using the data as mentioned above. The results did not
indicate any significant difference in stock returns across days. The analysis
conducted in various sub periods revealed the presence of day of the week effect
in the form of lowest returns on the first trading day. However, the paper
indicates identical distribution of stock returns across days.
In another study Hussain 1997, examined relationship between retunes and
stock market volatility for Pakistani equity market using daily data. The study
also found a strong evidence of persistence in variance in returns, implying that
shocks to volatility continue for a long period of time. When volatility was
controlled, it was found that serial dependence in stock returns was reduced but
not eliminates which indicated that the returns in the market may be partially
predictable.
Khilji 1993 investigated the time series behavior of monthly stock returns
in Pakistan over the period July 1981 to June 1992. The author made use of the
state bank of Pakistan (SBP) share prices indices to calculate the monthly stock
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returns for eleven groups of stocks. The findings of the research suggested that
the distribution of the returns of various series were not normal and were
generally, positively skewed, leptokurtic and had positive mean. Assuming that
each industry group represented an efficient and diversified portfolio, historical
betas were found to be statistically different from zero but not different form
one. This means that investors in Pakistan sock market who have diversified
portfolios of stock of different industries were subject to the same amount of
risk as investors with one industry portfolio.
According to Ahmad and Rosser erratic and complex dynamics of the
stock market suggests that Pakistani economy may be subject to instabilities and
oscillations. On the other hand, rising but volatile market prices also reflect
optimism regarding future economic development.
In a firm level study Farid and Ashraf 1995, analyzed the effects of
trading volume on the volatility of stock prices has been studied by using
average daily turnover of ten randomly selected companies for the first six
months of 1994. Volatility of stock prices was found to be quite high ranging
from a minimum of 26% per annum to 51% per annum. There was a strong
positive correlation among the volume of trading, expected rate of return and
volatility of stock prices during the first half of 1994 indicating the trend at the
DSE to invest in stocks only for short term gains. It was observed in the study
that majority of investors entered the market when it was rising and abandoned
when it was falling, thus following their own portfolio insurance schemes. The
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author also suggested a more detailed study on the basis of daily fluctuation of
stock prices to get more accurate results.
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CHAPTER # 3
RESEARCH METHODOLOGY AND DESIGN
TYPE OF THE STUDY
The present study was an analytical research paper. The impacts of Risk on
the return have estimated as an analytical aspect of the study. The relationship
between risk and return has been analyzed in this research paper. This research
paper used to analyze that how stock volatility affects the stock return.
3.2 SOURCES AND TYPE OF DATA
The importance of the data in economic research is an integral part of the
building block of research. To reach an accurate and reliable source, searching
for most relevant form of the data is a basic part of a research work. The
analytical view of the data and their understanding can help in reaching concrete
results. Most of reliable monthly data have been taken of last five years of
Karachi stock exchange.
Usually it is observed that new researchers face difficulties in the source
of data for longer time series. So a maximum care has been made to elaborate
the data, its nature and source in an explicit way to help the researchers.
Therefore, monthly data of last five years has been used in this regard.
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For present study, the research has conducted on the basis of secondary
data. There are various sources of data, which provide information on the stock
prices and their risks and returns. Although the primary sources of the data are,
local libraries, Annual reports, and the internet. It includes books, journals,
newspapers, and various web sites. It has been found that internet is very useful
source of valuable information that has been used in this study.
The main focus is on risk and return that will be appropriate to take start
from these variables. Information on these variables is almost available in the
entire above-mentioned data sources.
3.3 STATISTICAL TOOLS
. In this research paper there are two type of analysis have been carried out.
Firstly standard deviation has been calculated, in order to get total risk of top
five selected companies on the basis of monthly data of last five years.
Secondly, capital asset pricing model has been used for analysis. Measure of
volatility is beta. Therefore, beta indicates that how much uncertainty and
volatility exist in the market. The Capital Asset Pricing Model is one of the best
known methods for quantifying risk.
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An Analysis of Stock Market Behavior: Risk, Return, and Stock Market Volatility In Pakistan (KSE). 25
CHAPTER # 4
ANALYSIS AND INTERPRETATION OF DATA
Table 4.1: CALCULATION OF MEAN AND STANDAD DEVIATION
1) PAKISTAN TELE COMUNICATION COMPANY LIMITED (PTCL)
YEAR 1998
MONTHS PRICES PER CAPITAL GAIN / DIVIDEND TOTAL RETURN
SHARE IN (LOSS) IN %ages
RS.
Jan 1st to Jan 31st 18.00 (1.50) 0.4625 (5.32) (9.06) 82.08
Feb 1st to Feb 28th 19.05 1.05 0.4625 8.40 4.66 21.71
Mar 1st to Mar 31st 19.45 0.40 0.4625 4.53 0.79 0.6241
Apr 1st to Apr 30th 18.75 (0.70) 0.4625 (1.22) (4.96) 24.60
May 1st to May 31st 18.20 (0.55) 0.4625 (0.47) (4.21) 17.72
Jun 1st to Jun 30th 17.65 (0.55) 0.4625 (0.48) (4.22) 17.81
July 1st to July 31st 19.45 1.80 0.4625 12.82 9.08 82.45
Aug 1st to Aug 30th 21.00 1.55 0.4625 10.35 6.61 43.69
Sep 1st to Sep 30th 23.85 2.85 0.4625 15.77 12.03 144.72
Oct 1st to Oct 31st 24.45 0.60 0.4625 4.45 0.71 0.5041
Nov 1st to Nov 30th 24.75 0.30 0.4625 3.12 (0.62) 0.3844
Dec 1st to Dec 31st 22.55 (2.20) 0.4625 (7.02) (10.76) 115.78
SUB TOTAL 5.55 44.93 552.07
YEAR 1999
RS.
Jan 1st to Jan 31st 18.10 (0.95) 0.617 (1.75) (5.92) 35.05
Feb 1st to Feb 28th 17.75 (0.35) 0.617 1.48 (2.69) 7.24
Mar 1st to Mar 31st 18.60 0.85 0.617 8.26 4.09 16.73
Apr 1st to Apr 30th 20.45 1.85 0.617 13.26 9.09 82.63
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May 1st to May 31st 22.10 1.65 0.617 11.09 6.92 47.89
Jun 1st to Jun 30th 19.85 (2.25) 0.617 (7.39) (11.56) 133.63
July 1st to July 31st 23.10 3.25 0.617 19.48 15.31 234.40
Aug 1st to Aug 30th 21.00 (2.10) 0.617 (6.42) (10.59) 112.15
Sep 1st to Sep 30th 21.10 0.10 0.617 3.41 (0.76) 0.5776
Oct 1st to Oct 31st 19.90 (1.20) 0.617 (2.76) (6.93) 48.02
Nov 1st to Nov 30th 20.65 0.75 0.617 6.87 2.70 7.29
Dec 1st to Dec 31st 21.70 1.05 0.617 8.07 3.90 15.21
SUB TOTAL 7.40 50.00 740.82
YEAR 2000
RS.
Jan 1st to Jan 31st 25.65 3.95 0.6875 21.37 17.76 315.42
Feb 1st to Feb 28th 28.10 2.45 0.6875 12.23 8.62 74.30
Mar 1st to Mar 31st 30.85 2.75 0.6875 12.23 8.62 74.30
Apr 1st to Apr 30th 29.90 (0.95) 0.6875 (0.8509) (4.46) 19.90
May 1st to May 31st 28.25 (1.65) 0.6875 (3.22) (6.83) 46.65
Jun 1st to Jun 30th 27.85 (0.40) 0.6875 1.02 (2.59) 6.71
July 1st to July 31st 27.80 (0.05) 0.6875 2.29 (1.32) 1.74
Aug 1st to Aug 30th 26.60 (1.20) 0.6875 (1.84) (5.42) 29.70
Sep 1st to Sep 30th 26.80 0.20 0.6875 3.34 (0.27) 0.0729
Oct 1st to Oct 31st 25.90 (0.90) 0.6875 (0.7929) (4.40) 19.39
Nov 1st to Nov 30th 24.70 (1.20) 0.6875 (1.98) (5.59) 31.25
Dec 1st to Dec 31st 23.90 (0.80) 0.6875 (0.4555) (4.07) 16.53
SUB TOTAL 8.250 43.34 635.96
YEAR 2001
RS.
Jan 1st to Jan 31st 25.30 (1.40) 0.7625 (2.66) (5.49) 30.14
Feb 1st to Feb 28th 24.30 (1.00) 0.7625 (0.9387) (3.77) 14.20
Mar 1st to Mar 31st 22.75 (1.55) 0.7625 (3.24) (6.07) 36.54
Apr 1st to Apr 30th 22.90 0.15 0.7625 4.01 1.18 1.39
May 1st to May 31st 23.00 0.10 0.7625 3.77 0.94 0.8836
Jun 1st to Jun 30th 22.75 (0.25) 0.7625 2.23 (0.60) 0.36
July 1st to July 31st 21.00 (1.75) 0.7625 (4.34) (7.17) 51.41
Aug 1st to Aug 30th 20.75 (0.25) 0.7625 2.44 (0.39) 0.1521
Javed Mehboob (MBA)

Sep 1st to Sep 30th 19.55 (1.20) 0.7625 (2.11) (4.94) 24.40
Oct 1st to Oct 31st 19.80 1.25 0.7625 10.29 7.46 55.65
Nov 1st to Nov 30th 21.55 1.75 0.7625 12.69 9.86 97.23
Dec 1st to Dec 31st 23.40 1.85 0.7625 12.12 9.29 86.30
SUB TOTAL 9.15 33.96 398.66
YEAR 2002
RS.
Jan 1st to Jan 31st 15.60 7.80 0.8292 36.88 27.55 759.00
Feb 1st to Feb 28th 17.55 1.95 0.8292 17.81 8.48 71.91
Mar 1st to Mar 31st 18.95 1.40 0.8292 12.70 3.37 11.36
Apr 1st to Apr 30th 19.15 0.20 0.8292 5.42 (3.91) 15.29
May 1st to May 31st 15.45 (3.70) 0.8292 (14.99) (24.32) 591.46
Jun 1st to Jun 30th 17.15 1.70 0.8292 16.37 7.04 49.56
July 1st to July 31st 18.75 1.60 0.8292 14.16 4.83 23.33
Aug 1st to Aug 30th 20.15 1.40 0.8292 11.89 2.56 6.55
Sep 1st to Sep 30th 17.25 (2.90) 0.8292 (10.28) (19.61) 384.55
Oct 1st to Oct 31st 19.80 2.55 0.8292 19.59 10.26 105.27
Nov 1st to Nov 30th 21.25 1.45 0.8292 11.51 2.18 4.75
Dec 1st to Dec 31st 18.50 (2.75) 0.8292 (9.04) (18.37) 337.46
SUB TOTAL 9.95 112.02 2360.49
Javed Mehboob (MBA)

Pakistan (KSE).
INTERPRETATION
Risk is calculated on the basis of fluctuations. Risk can not be eliminated
at all. It can be minimized but can’t be eliminate entirely. Risk can be diverge
both the sides positive or negative. If the difference between average (mean) and
standard deviation is less, therefore it must be less risky investment, and if the
difference between average (mean) and standard deviation is high than it
indicates that it must be very risky investment. Standard deviation is a measure
of the dispersion of a set of data from its mean. The more spread apart the data
is, the higher the deviation. A volatile stock would have a high standard
deviation. Standard deviation can also be calculated as the square root of the
variance. Whatever way TSR is calculated, it means the same thing - the total
amount returned to investors.
In year 1998, PTCL total risk is 7.08 and total return is 44.93. It indicates that
there is either +7.08% or -7.08% deviation is possible. If this share has been
purchased for Rs. 22.50 and there is risk of 7.08%. than this share can be for Rs.
24.09, if there is +7.08%, and if there is -7.08% than this share can be for Rs.
20.91. In year 1999, PTCL total risk is 8.21% while its total return is 50.00%. It
indicates that the price of this share can be deviate either +8.21% or -8.21%. In
year 2000, PTCL total risk is 7.60% and its total return is 43.34%. It shows that
price of this share can be deviate +7.60% or -7.60%. In year 2001, its total risk
is 6.02%, while total return is 33.96%. The price of this share can be deviate
either +6.02% or -6.02%. . In year 2002, PTCL total risk is 14.65% while its
Javed Mehboob (MBA)

Pakistan (KSE).
total return is 112.02%. It indicates that the price of this share can be deviate
either +14.65% or -14.65%. If there is high risk there are high chances of
deviation and if there is low risk than there are lesser chances
Javed Mehboob (MBA)

Pakistan (KSE).
of deviation. In year 2002, there is high risk as 14.65%. Therefore, there is high
chance of deviation as well. This deviation can be either +14.65% or-14.65%.
Javed Mehboob (MBA)

2) PAKISTAN STATE OIL COMPANY LIMITED (PSO)
YEAR 1998
RS.
Jan 1st to Jan 31st 78.00 1.45 1.6784 4.09 (0.47) 0.2209
Feb 1st to Feb 28th 78.25 0.25 1.6784 2.47 (2.09) 4.37
Mar 1st to Mar 31st 77.95 (0.30) 1.6784 1.76 (2.80) 7.84
Apr 1st to Apr 30th 77.40 0.55 1.6784 2.86 (1.70) 2.89
May 1st to May 31st 76.00 (1.40) 1.6784 0.3597 (4.20) 17.64
Jun 1st to Jun 30th 76.25 0.25 1.6784 2.54 (2.02) 4.08
July 1st to July 31st 82.50 6.25 1.6784 10.40 5.84 34.11
Aug 1st to Aug 30th 78.95 (3.55) 1.6784 (2.27) (6.83) 46.65
Sep 1st to Sep 30th 94.40 15.45 1.6784 21.70 17.14 293.78
Oct 1st to Oct 31st 54.90 (39.50) 1.6784 (40.07) (44.63) 1991.84
Nov 1st to Nov 30th 83.90 29.00 1.6784 55.88 51.32 2633.74
Dec 1st to Dec 31st 78.00 (5.90) 1.6784 (5.03) (9.59) 91.97
SUB TOTAL 20.14 54.69 5129.13
YEAR 1999
RS.
Jan 1st to Jan 31st 60.75 (17.25) 2.083 (19.45) (31.19) 972.82
Feb 1st to Feb 28th 66.70 5.95 2.083 13.22 1.48 2.19
Mar 1st to Mar 31st 84.60 17.90 2.083 29.96 18.22 331.97
Apr 1st to Apr 30th 89.25 4.65 2.083 7.96 (3.78) 14.29
May 1st to May 31st 105.90 16.65 2.083 20.99 9.25 85.56
Jun 1st to Jun 30th 92.50 (13.40) 2.083 (10.69) (22.43) 503.10
July 1st to July 31st 136.35 43.85 2.083 49.66 37.92 1437.93
Aug 1st to Aug 30th 125.00 (11.35) 2.083 (6.80) (18.54) 343.73
Sep 1st to Sep 30th 134.50 9.50 2.083 9.27 (2.47) 6.10
Oct 1st to Oct 31st 137.55 3.05 2.083 3.82 (7.92) 62.73
Nov 1st to Nov 30th 141.70 4.15 2.083 4.53 (7.21) 51.98
Javed Mehboob (MBA)

Dec 1st to Dec 31st 194.00 52.30 2.083 38.38 26.64 709.69
SUB TOTAL 25.00 140.85 4522.09
YEAR 2000
RS.
Jan 1st to Jan 31st 151.50 (39.50) 2.792 (18.92) (19.83) 393.33
Feb 1st to Feb 28th 155.50 4.00 2.792 4.48 3.57 12.73
Mar 1st to Mar 31st 154.60 (0.90) 2.792 1.22 0.3075 0.0946
Apr 1st to Apr 30th 136.25 (18.35) 2.792 (10.06) (10.97) 120.40
May 1st to May 31st 135.15 (1.10) 2.792 1.24 0.3275 0.1073
Jun 1st to Jun 30th 141.44 6.29 2.792 6.72 5.81 33.73
July 1st to July 31st 142.26 0.82 2.792 2.55 1.64 2.68
Aug 1st to Aug 30th 150.45 8.19 2.792 7.72 6.81 46.34
Sep 1st to Sep 30th 155.26 4.81 2.792 5.05 4.14 17.12
Oct 1st to Oct 31st 165.94 10.68 2.792 8.68 7.77 59.56
Nov 1st to Nov 30th 168.22 2.28 2.792 3.06 2.15 4.61
Dec 1st to Dec 31st 164.10 (4.12) 2.792 (0.7896) (1.70) 2.90
SUB TOTAL 33.50 10.95 693.60
YEAR 2001
RS.
Jan 1st to Jan 31st 144.75 (19.35) 3.50 (9.66) (11.08) 122.77
Feb 1st to Feb 28th 142.25 2.50 3.50 4.15 2.73 7.45
Mar 1st to Mar 31st 144.25 2.00 3.50 3.87 2.45 6.00
Apr 1st to Apr 30th 141.65 (2.60) 3.50 0.6239 (0.7961) 0.6338
May 1st to May 31st 142.45 0.80 3.50 3.04 1.62 2.62
Jun 1st to Jun 30th 132.50 (9.95) 3.50 (4.53) (5.95) 35.40
July 1st to July 31st 123.55 (8.95) 3.50 (4.11) (5.53) 30.58
Aug 1st to Aug 30th 127.85 4.30 3.50 6.31 4.89 23.91
Sep 1st to Sep 30th 105.60 (22.25) 3.50 (14.67) (16.09) 258.89
Oct 1st to Oct 31st 111.60 6.00 3.50 9.00 7.58 57.46
Nov 1st to Nov 30th 117.60 12.80 3.50 14.61 13.19 173.98
Dec 1st to Dec 31st 130.40 6.40 3.50 8.42 7.00 49.00
SUB TOTAL 42.00 17.05 768.69
YEAR 2002
Javed Mehboob (MBA)


RS.
Jan 1st to Jan 31st 125.00 (5.40) 3.75 (1.26) (8.64) 74.65
Feb 1st to Feb 28th 138.50 13.50 3.75 13.80 6.42 41.22
Mar 1st to Mar 31st 147.15 8.65 3.75 8.95 1.57 2.46
Apr 1st to Apr 30th 154.15 7.00 3.75 7.31 (0.07) 0.0049
May 1st to May 31st 148.85 (5.30) 3.75 (1.01) (8.39) 70.39
Jun 1st to Jun 30th 140.00 (8.85) 3.75 (3.43) (10.81) 116.86
July 1st to July 31st 140.80 0.80 3.75 3.25 (4.13) 17.06
Aug 1st to Aug 30th 202.65 61.85 3.75 46.59 39.21 1537.42
Sep 1st to Sep 30th 197.30 (5.35) 3.75 (0.7895) (8.17) 66.74
Oct 1st to Oct 31st 195.50 (1.80) 3.75 0.9883 (6.39) 40.85
Nov 1st to Nov 30th 176.35 (19.15) 3.75 (7.88) (15.26) 232.87
Dec 1st to Dec 31st 211.50 35.15 3.75 22.06 14.68 215.50
SUB TOTAL 45.00 88.58 2416.02
Javed Mehboob (MBA)

Pakistan (KSE).
INTERPRETATION
In year 1998, PSO total risk is 21.59% while its total return is 54.69%. It
indicated that there is possibility of deviation in price is either +21.59% or
-21.59%. For instance this share has been purchased for Rs. 78.00. This share
can be for Rs. 94.84, if there is +21.59% variation. This share can be also for
Rs. 61.16, if there is -21.59% divergences. In year 1999, its total risk is 20.28%
and total return is 140.85%. It shows that there is a possibility of deviation in
price. This deviation may +20.28% or -20.28%. In year 2000, PSO total risk is
7.94% while its total return is 10.95%. It indicates that the price of this share
can be deviate either +7.94% or -7.94%. In year 2001, its total risk is 8.36% and
its total return is 17.05%. 8.36% indicates that the price of this share can be
deviate either +8.36% or -8.36%. In year 2002, PSO total risk is 14.82% while
its total return is 88.58%. It indicates that there is possibility of deviation in
price either +14.82% or -14.82%. ………………………………………………….
Javed Mehboob (MBA)

3) ENGRO CHEMICAL PAKISTAN LIMITED
YEAR 1998
RS.
Jan 1st to Jan 31st 56.80 (3.52) 2.0322 (2.47) (10.39) 107.95
Feb 1st to Feb 28th 50.44 (6.36) 2.0322 (7.62) (15.54) 241.49
Mar 1st to Mar 31st 52.07 1.63 2.0322 7.26 (0.66) 0.4356
Apr 1st to Apr 30th 50.46 (1.61) 2.0322 0.8108 (7.12) 50.54
May 1st to May 31st 54.32 3.86 2.0322 11.68 3.76 14.14
Jun 1st to Jun 30th 59.75 5.43 2.0322 13.74 5.82 33.87
July 1st to July 31st 65.90 6.15 2.0322 13.69 5.77 33.29
Aug 1st to Aug 30th 66.25 0.35 2.0322 3.61 (4.31) 18.58
Sep 1st to Sep 30th 59.60 (6.65) 2.0322 (6.97) (14.89) 221.71
Oct 1st to Oct 31st 51.30 (8.30) 2.0322 (10.52) (18.44) 340.03
Nov 1st to Nov 30th 69.90 18.60 2.0322 40.22 32.30 1043.29
Dec 1st to Dec 31st 89.95 20.05 2.0322 31.59 23.67 560.27
SUB TOTAL 24.386 95.02 2665.60
YEAR 1999
MONTHS PRICES PER CAPITAL GAIN / DIVIDEND PER TOTAL RETURN
SHARE IN (LOSS) SHARE IN IN %ages
RS. RS.
Jan 1st to Jan 31st 88.00 (1.95) 1.7842 (0.1843) (1.48) 2.20
Feb 1st to Feb 28th 88.35 0.35 1.7842 2.43 1.13 1.28
Mar 1st to Mar 31st 90.00 1.65 1.7842 3.89 2.59 6.71
Apr 1st to Apr 30th 84.40 (5.60) 1.7842 (4.24) (5.54) 30.69
May 1st to May 31st 76.10 (8.30) 1.7842 (7.72) (9.02) 81.36
Jun 1st to Jun 30th 72.50 (3.60) 1.7842 (2.39) (3.69) 13.62
July 1st to July 31st 74.55 2.05 1.7842 5.29 3.99 15.92
Javed Mehboob (MBA)

Aug 1st to Aug 30th 76.89 2.34 1.7842 5.53 4.23 17.89
Sep 1st to Sep 30th 76.99 0.10 1.7842 2.45 1.15 1.32
Oct 1st to Oct 31st 78.74 1.75 1.7842 4.59 3.29 10.82
Nov 1st to Nov 30th 79.25 0.51 1.7842 2.91 1.61 2.59
Dec 1st to Dec 31st 79.92 0.67 1.7842 3.10 1.80 3.24
SUB TOTAL 21.41 15.66 187.64
YEAR 2000
MONTHS PRICES PER CAPITAL GAIN / DIVIDEND PER TOTAL RETURN
SHARE IN (LOSS) SHARE IN IN %ages
RS. RS.
Jan 1st to Jan 31st 69.95 (9.97) 1.36 (10.77) (12.54) 157.25
Feb 1st to Feb 28th 74.44 4.49 1.36 8.36 6.59 43.43
Mar 1st to Mar 31st 78.29 3.85 1.36 7.00 5.23 27.35
Apr 1st to Apr 30th 76.99 (1.30) 1.36 0.07664 (1.69) 2.87
May 1st to May 31st 79.44 2.45 1.36 4.95 3.18 10.11
Jun 1st to Jun 30th 78.65 (0.79) 1.36 0.7175 (1.05) 1.11
July 1st to July 31st 77.10 (1.55) 1.36 (0.2416) (2.01) 4.05
Aug 1st to Aug 30th 77.25 0.15 1.36 1.96 0.19 0.0361
Sep 1st to Sep 30th 77.80 0.55 1.36 2.47 0.70 0.49
Oct 1st to Oct 31st 78.75 0.95 1.36 2.97 1.20 1.44
Nov 1st to Nov 30th 78.85 0.10 1.36 1.85 0.08 0.0064
Dec 1st to Dec 31st 79.00 0.15 1.36 1.92 0.15 0.0225
SUB TOTAL 16.32 21.26 248.17
YEAR 2001
RS.
Jan 1st to Jan 31st 77.75 (1.25) 2.16 1.15 (1.63) 2.66
Feb 1st to Feb 28th 63.60 (4.15) 2.16 (2.56) (5.34) 28.51
Mar 1st to Mar 31st 57.60 (6.00) 2.16 (6.04) (8.82) 77.79
Apr 1st to Apr 30th 61.65 4.05 2.16 10.78 8.00 64.00
May 1st to May 31st 67.55 5.90 2.16 13.07 10.29 105.88
Jun 1st to Jun 30th 67.05 (0.50) 2.16 2.46 (0.32) 0.1024
July 1st to July 31st 59.75 (7.30) 2.16 (7.66) (10.44) 108.99
Aug 1st to Aug 30th 63.95 4.20 2.16 10.64 7.86 61.78
Sep 1st to Sep 30th 65.90 1.95 2.16 6.43 3.65 13.32
Oct 1st to Oct 31st 66.05 0.15 2.16 3.51 0.73 0.5329
Nov 1st to Nov 30th 65.20 (0.85) 2.16 1.98 (0.80) 0.64
Javed Mehboob (MBA)

Dec 1st to Dec 31st 62.75 (2.45) 2.16 (0.4448) (3.22) (10.40)
SUB TOTAL 25.92 33.32 453.80
YEAR 2002
RS.
Jan 1st to Jan 31st 60.25 (2.50) 2.2725 (0.3625) (8.04) 64.68
Feb 1st to Feb 28th 75.55 15.30 2.2725 29.16 21.48 461.39
Mar 1st to Mar 31st 78.95 3.40 2.2725 7.51 (0.17) 0.0289
Apr 1st to Apr 30th 64.85 (14.10) 2.2725 (14.98) (22.66) 513.48
May 1st to May 31st 52.60 (12.25) 2.2725 (15.38) (23.06) 531.76
Jun 1st to Jun 30th 59.90 7.30 2.2725 18.20 10.52 110.67
July 1st to July 31st 64.70 4.80 2.2725 11.81 4.13 17.06
Aug 1st to Aug 30th 63.65 (1.05) 2.2725 1.89 (5.79) 33.52
Sep 1st to Sep 30th 63.10 (0.55) 2.2725 2.71 (4.97) 24.70
Oct 1st to Oct 31st 70.00 6.90 2.2725 14.54 6.86 47.06
Nov 1st to Nov 30th 72.25 2.25 2.2725 6.46 (1.22) 1.49
Dec 1st to Dec 31st 92.05 19.80 2.2725 30.55 22.87 523.04
SUB TOTAL 27.27 92.12 2328.88
Javed Mehboob (MBA)

Pakistan (KSE).
INTERPRETATION
In 1998, Engro Chemical’s total risk is 15.57% while its total return is
95.02%. It indicates that the price of this share can be deviate either +15.57% or
-15.57%. If this share has been purchased for Rs. 89.95, and there is possibility
of +15.57% than the price of this share can be Rs. 103.96 and if there is
possibility of -15.57% than the price of this share can be Rs. 75.94. In year
1999, Engro Chemical’s total risk is 4.13% while its total return is 15.66%. It
indicates that the price of this share can be deviate either +4.13% or -4.13%. In
year 2000, Engro Chemical’s total risk is 4.75% and its total return is 21.26%. It
shows that price of this share can be deviate +4.75% or -4.75%. In year 1999
and 2000 Engro chemical’s total risks are very low therefore; there are the
possibilities of low deviations, as the risks are very low in both the years. In
year 2001, its total risk is 6.42% while its total return is 33.32%. The price of
this share can be deviate either +6.42% or -6.42%. In year 2002, Engro
Chemical’s total risk is 14.55% while its total return is 92.12%. It indicates that
there is possibility of deviation in price either +14.55% or -14.55%. In year
2002, standard deviation is high as 14.55%, therefore there is high chance of
variation either it is positive or negative. ……………………………………………
Javed Mehboob (MBA)

4) MUSLIM COMMERCIAL BANK LIMITED (MCB)
YEAR 1998
RS.
Jan 1st to Jan 31st 12.75 (1.70) 0.08658 (11.17) (13.33) 177.69
Feb 1st to Feb 28th 15.00 2.25 0.08658 18.33 16.17 261.49
Mar 1st to Mar 31st 16.25 1.25 0.08658 8.91 6.75 45.56
Apr 1st to Apr 30th 17.05 0.80 0.08658 5.46 3.30 10.89
May 1st to May 31st 17.60 0.55 0.08658 3.73 1.57 2.46
Jun 1st to Jun 30th 18.60 1.00 0.08658 6.17 4.01 16.08
July 1st to July 31st 16.40 (2.20) 0.08658 (11.36) (13.52) 182.79
Aug 1st to Aug 30th 17.75 1.35 0.08658 8.76 6.60 43.96
Sep 1st to Sep 30th 20.65 2.90 0.08658 16.83 14.67 215.21
Oct 1st to Oct 31st 18.10 (2.25) 0.08658 (10.48) (12.64) 159.77
Nov 1st to Nov 30th 19.10 1.00 0.08658 6.00 3.84 14.75
Dec 1st to Dec 31st 17.05 (3.00) 0.08658 (15.25) (17.41) 303.11
SUB TOTAL 1.039 25.93 1433.76
YEAR 1999
RS.
Jan 1st to Jan 31st 16.60 (0.45) 0.334 (0.6804) (2.96) 8.76
Feb 1st to Feb 28th 18.45 1.85 0.334 13.16 10.88 118.37
Mar 1st to Mar 31st 22.50 3.80 0.334 22.41 20.13 405.23
Apr 1st to Apr 30th 23.40 0.40 0.334 3.26 0.98 0.9604
May 1st to May 31st 21.07 (2.28) 0.334 (8.32) (10.60) 112.36
Jun 1st to Jun 30th 22.45 1.38 0.334 8.13 5.85 34.22
July 1st to July 31st 24.50 (2.05) 0.334 (7.64) (9.92) 98.41
Aug 1st to Aug 30th 23.45 (1.05) 0.334 (2.92) (5.20) 27.04
Sep 1st to Sep 30th 20.50 (2.95) 0.334 (11.16) (13.44) 180.63
Oct 1st to Oct 31st 21.25 (0.75) 0.334 (2.03) (4.31) 18.58
Javed Mehboob (MBA)

Nov 1st to Nov 30th 24.40 3.15 0.334 16.40 14.12 199.37
Dec 1st to Dec 31st 23.28 (1.12) 0.334 (3.22) (5.50) 30.25
SUB TOTAL 4.008 27.39 1234.18
YEAR 2000
RS.
Jan 1st to Jan 31st 22.45 (0.83) 0.2677 (2.42) (7.26) 52.71
Feb 1st to Feb 28th 23.16 0.71 0.2677 4.36 (0.48) 0.2304
Mar 1st to Mar 31st 20.25 (2.91) 0.2677 (11.41) (16.25) 264.06
Apr 1st to Apr 30th 18.84 (1.41) 0.2677 (5.64) (10.48) 109.83
May 1st to May 31st 21.22 2.38 0.2677 14.05 9.21 84.82
Jun 1st to Jun 30th 22.64 1.42 0.2677 7.95 3.11 9.67
July 1st to July 31st 25.21 2.57 0.2677 12.53 7.69 59.14
Aug 1st to Aug 30th 26.55 1.34 0.2677 6.38 1.54 2.37
Sep 1st to Sep 30th 29.75 3.20 0.2677 13.06 8.22 67.57
Oct 1st to Oct 31st 34.65 4.90 0.2677 17.37 12.53 157.00
Nov 1st to Nov 30th 25.80 (8.85) 0.2677 (24.77) (29.61) 876.75
Dec 1st to Dec 31st 32.40 6.60 0.2677 26.62 21.78 474.37
SUB TOTAL 3.212 58.08 2158.52
YEAR 2001
RS.
Jan 1st to Jan 31st 31.50 (0.90) 0.2171 (2.11) (4.56) 20.79
Feb 1st to Feb 28th 28.35 (3.15) 0.2171 (9.31) (11.76) 139.24
Mar 1st to Mar 31st 23.45 (4.90) 0.2171 (16.52) (18.97) 359.86
Apr 1st to Apr 30th 26.85 3.40 0.2171 15.42 12.97 168.22
May 1st to May 31st 26.40 (0.45) 0.2171 (0.8674) (3.32) 11.00
Jun 1st to Jun 30th 28.45 2.05 0.2171 8.59 6.14 37.70
July 1st to July 31st 24.90 (3.55) 0.2171 (11.71) (14.16) 200.50
Aug 1st to Aug 30th 27.20 2.30 0.2171 10.11 7.66 58.67
Sep 1st to Sep 30th 29.55 2.35 0.2171 9.43 6.98 48.72
Oct 1st to Oct 31st 34.30 4.75 0.2171 16.81 14.36 206.21
Nov 1st to Nov 30th 37.35 3.05 0.2171 9.53 7.08 50.13
Dec 1st to Dec 31st 33.80 (3.55) 0.2171 (8.92) (11.37) 129.28
SUB TOTAL 2.605 29.37 1430.23
YEAR 2002
Javed Mehboob (MBA)


RS.
Jan 1st to Jan 31st 25.80 7.00 0.4282 39.51 33.11 1096.27
Feb 1st to Feb 28th 27.32 1.52 0.4282 7.55 1.15 1.32
Mar 1st to Mar 31st 24.05 (3.27) 0.4282 (10.40) (16.80) 282.24
Apr 1st to Apr 30th 23.25 (0.80) 0.4282 (1.55) (7.95) 63.20
May 1st to May 31st 24.40 1.15 0.4282 6.79 0.39 0.1521
Jun 1st to Jun 30th 29.10 4.70 0.4282 21.02 14.62 213.74
July 1st to July 31st 23.90 (5.20) 0.4282 (16.40) (22.80) 519.84
Aug 1st to Aug 30th 25.35 1.45 0.4282 7.86 1.46 2.13
Sep 1st to Sep 30th 27.10 1.75 0.4282 8.59 2.19 4.80
Oct 1st to Oct 31st 32.75 5.65 0.4282 22.43 16.03 256.96
Nov 1st to Nov 30th 33.05 0.33 0.4282 2.32 (4.08) 16.65
Dec 1st to Dec 31st 29.00 (4.05) 0.4282 (10.96) (17.36) 301.37
SUB TOTAL 5.138 76.76 2758.67
Javed Mehboob (MBA)

Pakistan (KSE).
INTERPRETATION
In year 1998, MCB total risk is 11.42% and total return is 25.93%. It
indicates that there is either +11.42% or -11.42% deviation is possible. If this
share has been purchased for Rs. 17.05 and there is risk of 11.42%. Than this
share can be for Rs. 19.00, if there is possibility of +11.42% variation, and if
there is possibility of -11.42% deviation, than this share can be for Rs. 15.10. In
year 1999, MCB total risk is 10.59% while its total return is 27.39%. It indicates
that the price of this share can be deviate either +10.59% or -10.59%. In year
2000, MCB total risk is 14.01% and its total return is 58.08%. It shows that the
price of this share can be deviate +14.01% or -14.01%. In year 2001, its total
risk is 11.40% while its total return is 29.37%. The price of this share can be
deviate either +11.40% or -11.40%. In year 2002, MCB total risk is 15.84%
while its total return is 76.76%. It indicates that the price of this share can be
deviate either +15.84% or -15.84%. If there is high risk there are high chances
of deviation and if there is low risk than there are lesser chances of deviation. In
year 2002, there is high risk as 15.84%. Therefore, there is high chance of
deviation as well. This deviation can be either positive or negative.
Javed Mehboob (MBA)

5) FAUJI FERTILIZER COMPANY
YEAR 1998
RS.
Jan 1st to Jan 31st 40.25 (0.25) 2.6812 6.00 (2.52) 6.35
Feb 1st to Feb 28th 42.95 2.70 2.6812 13.37 4.85 23.52
Mar 1st to Mar 31st 45.70 2.75 2.6812 12.65 4.13 17.07
Apr 1st to Apr 30th 52.22 6.52 2.6812 20.13 11.61 134.79
May 1st to May 31st 54.15 1.93 2.6812 8.83 0.31 0.0961
Jun 1st to Jun 30th 51.50 (2.65) 2.6812 0.0576 (8.46) 71.61
July 1st to July 31st 46.20 (5.30) 2.6812 (5.09) (13.61) 185.23
Aug 1st to Aug 30th 51.25 5.05 2.6812 16.73 8.21 67.40
Sep 1st to Sep 30th 50.55 (0.70) 2.6812 3.87 (4.65) 21.62
Oct 1st to Oct 31st 34.30 (16.25) 2.6812 (26.84) (35.36) 1250.33
Nov 1st to Nov 30th 51.85 17.55 2.6812 58.98 50.46 2546.21
Dec 1st to Dec 31st 45.80 (6.05) 2.6812 (6.50) (15.02) 225.60
SUB TOTAL 32.17 102.19 4549.82
YEAR 1999
RS.
Jan 1st to Jan 31st 41.10 (4.70) 2.3117 (5.21) (12.15) 147.62
Feb 1st to Feb 28th 44.25 3.15 2.3117 13.29 6.35 40.32
Mar 1st to Mar 31st 55.55 11.30 2.3117 30.76 23.82 567.39
Apr 1st to Apr 30th 53.55 (2.00) 2.3117 0.5611 (6.38) 40.69
May 1st to May 31st 51.40 (2.15) 2.3117 0.3020 (6.64) 44.06
Jun 1st to Jun 30th 40.75 (10.65) 2.3117 (16.22) (23.16) 536.39
July 1st to July 31st 49.25 8.50 2.3117 26.53 19.59 383.77
Aug 1st to Aug 30th 51.30 2.05 2.3117 8.86 1.92 3.69
Sep 1st to Sep 30th 45.80 (5.50) 2.3117 (6.22) (13.16) 173.19
Oct 1st to Oct 31st 46.00 0.20 2.3117 5.48 (1.46) 2.13
Javed Mehboob (MBA)

Nov 1st to Nov 30th 47.45 1.45 2.3117 8.18 1.24 1.54
Dec 1st to Dec 31st 53.20 5.75 2.3117 16.99 10.05 101.00
SUB TOTAL 27.74 83.31 2041.79
YEAR 2000
RS.
Jan 1st to Jan 31st 66.10 12.90 2.4858 28.92 26.12 682.25
Feb 1st to Feb 28th 63.00 (3.10) 2.4858 (0.9292) (3.73) 13.91
Mar 1st to Mar 31st 62.35 (0.65) 2.4858 2.91 0.11 0.0121
Apr 1st to Apr 30th 58.45 (3.90) 2.4858 (2.27) (5.07) 25.70
May 1st to May 31st 60.25 1.80 2.4858 7.33 4.53 20.52
Jun 1st to Jun 30th 55.22 (5.03) 2.4858 (4.22) (7.02) 49.28
July 1st to July 31st 50.95 (4.27) 2.4858 (3.23) (6.03) 36.36
Aug 1st to Aug 30th 52.15 1.20 2.4858 7.23 4.43 19.62
Sep 1st to Sep 30th 54.25 2.10 2.4858 8.79 5.99 35.88
Oct 1st to Oct 31st 54.95 0.70 2.4858 5.87 3.07 9.42
Nov 1st to Nov 30th 55.05 0.10 2.4858 4.71 1.91 3.65
Dec 1st to Dec 31st 40.75 (14.30) 2.4858 (21.46) (24.26) 588.55
SUB TOTAL 29.83 33.65 1485.15
YEAR 2001
RS.
Jan 1st to Jan 31st 48.20 7.45 2.645 24.77 17.33 300.33
Feb 1st to Feb 28th 41.85 (6.35) 2.645 (8.06) (15.50) 240.25
Mar 1st to Mar 31st 39.85 (2.00) 2.645 1.54 (5.90) 34.81
Apr 1st to Apr 30th 42.05 2.20 2.645 12.16 4.72 22.28
May 1st to May 31st 43.10 1.05 2.645 8.79 1.35 1.82
Jun 1st to Jun 30th 35.60 (7.50) 2.645 (11.26) (18.70) 349.69
July 1st to July 31st 35.00 (0.60) 2.645 5.74 (1.70) 2.89
Aug 1st to Aug 30th 36.70 1.70 2.645 12.41 4.97 24.70
Sep 1st to Sep 30th 32.20 (4.50) 2.645 (5.05) (12.49) 156.00
Oct 1st to Oct 31st 41.15 8.95 2.645 36.01 28.57 816.24
Nov 1st to Nov 30th 40.35 (0.80) 2.645 4.48 (2.96) 8.76
Dec 1st to Dec 31st 40.85 0.50 2.645 7.79 0.35 0.1225
SUB TOTAL 31.74 89.32 1957.89
YEAR 2002
Javed Mehboob (MBA)


RS.
Jan 1st to Jan 31st 49.50 8.65 2.50 27.29 199.18 367.87
Feb 1st to Feb 28th 49.65 0.15 2.50 5.35 (2.76) 7.62
Mar 1st to Mar 31st 40.25 (9.40) 2.50 (13.90) (22.01) 484.44
Apr 1st to Apr 30th 43.50 3.25 2.50 14.29 6.18 38.19
May 1st to May 31st 45.77 2.27 2.50 10.97 2.86 8.18
Jun 1st to Jun 30th 50.40 (4.63) 2.50 (4.65) (12.76) 162.82
July 1st to July 31st 52.35 1.95 2.50 8.83 0.72 0.5184
Aug 1st to Aug 30th 43.95 (8.40) 2.50 (11.27) (19.38) 375.58
Sep 1st to Sep 30th 49.75 5.80 2.50 18.89 10.78 116.21
Oct 1st to Oct 31st 47.85 (1.90) 2.50 1.21 (6.90) 47.61
Nov 1st to Nov 30th 51.40 3.55 2.50 12.64 4.53 20.52
Dec 1st to Dec 31st 63.10 11.70 2.50 27.63 19.52 381.03
SUB TOTAL 30.00 97.28 2010.59
Javed Mehboob (MBA)

Pakistan (KSE).
INTERPRETATION
In year 1998, Fauji fertilizer’s total risk is 20.34% and total return is
102.19%. It indicates that there is either +20.34% or –20.34% deviation is
possible. If this share has been purchased for Rs. 45.80 and there is risk of
20.34%. than this share can be for Rs. 55.12, if there is a possibility of +20.34%
, and if there is possibility of –20.34% than this share can be for Rs. 36.48. In
year 1999, Fauji fertilizer’s total risk is 13.62% while its total return is 83.31%.
It indicates that the price of this share can be deviate either +13.62% or –
13.62%. In year 2000, its total risk is 11.62% and its total return is 33.65%. It
shows that the price of this share can be deviate +11.62% or –11.62%. In year
2001, its total risk is 13.34% while its total return is 89.32%. The price of this
share can be deviate either +13.34% or –13.34%. In year 2002, Fauji fertilizer’s
total risk is 13.52% while its total return is 97.28%. It indicates that there is
possibility of deviation in price either +13.52% or –13.52%.
Under the light of above analysis it is concluded that risk can affect the
stock prices in two ways, either it can be positive or negative. If there is
positive affect than investor gets capital gain and, if there is negative affect than
investor suffers capital loss. Risk is a chance. Therefore risk can be deviate both
the sides either positive or negative. ………………………………………
Javed Mehboob (MBA)

Table 4.6: ANALYSIS SUMMARY
1) PAKISTAN TELE COMUNICATION COMPANY LIMITED (PTCL)

Years Total Return Total Risk Mean
Jan 1 to Dec 31st 1998
st 44.93 7.08 3.74
Jan 1st to Dec 31st 1999 50.00 8.21 4.17
Jan 1st to Dec 31st 2000 43.34 7.60 3.61
Jan 1st to Dec 31st 2001 33.96 6.02 2.83
Jan 1st to Dec 31st 2002 112.02 14.65 9.34
2) PAKISTAN STATE OIL COMPANY LIMITED (PSO)
st 54.69 21.59 4.56
Jan 1st to Dec 31st 1999 140.85 20.28 11.74
Jan 1st to Dec 31st 2000 10.95 7.94 0.9125
Jan 1st to Dec 31st 2001 17.05 8.36 1.42
Jan 1st to Dec 31st 2002 88.58 14.82 7.38
3) ENGRO CHEMICAL PAKISTAN LIMITED
st 95.02 15.57 7.92
Jan 1st to Dec 31st 1999 15.66 4.13 1.31
Jan 1st to Dec 31st 2000 21.26 4.75 1.77
Jan 1st to Dec 31st 2001 33.32 6.42 2.78
Jan 1st to Dec 31st 2002 92.12 14.55 7.68
4) MUSLIM COMMERCIAL BANK LIMITED (MCB)
st 25.93 11.42 2.16
Jan 1st to Dec 31st 1999 27.39 10.59 2.28
Jan 1st to Dec 31st 2000 58.08 14.01 4.84
Jan 1st to Dec 31st 2001 29.37 11.40 2.45
Jan 1st to Dec 31st 2002 76.76 15.84 6.40
5) FAUJI FERTILIZER COMPANY
Javed Mehboob (MBA)


st
102.19 20.34 8.52
Jan 1st to Dec 31st 1999 83.31 13.62 6.94
Jan 1st to Dec 31st 2000 33.65 11.62 2.80
Jan 1st to Dec 31st 2001 89.32 13.34 7.44
Jan 1st to Dec 31st 2002 97.28 13.52 8.11
Javed Mehboob (MBA)

Pakistan (KSE).
Table 4.7: CAPITAL ASSET PRICING MODEL (CAPM)
Year 1998
Rf Erm Beta Ke Type of
Investment
FF 15.10 24.10 2.15 34.45 Very Aggressive
EC 15.10 24.10 0.93 23.47 Defensive
PSO 15.10 24.10 0.41 18.79 Very Defensive
PTCL 15.10 24.10 0.38 18.52 Very Defensive
MCB 15.10 24.10 0.006 15.15 Very Defensive
Year 1999
Investment
PSO 12.50 21.50 1.46 25.64 Aggressive
EC 12.50 21.50 0.075 13.17 Very Defensive
Year 2000
Investment
EC 8.80 17.80 1.05 18.25 Aggressive
PSO 8.80 17.80 0.11 9.79 Very Defensive
Year 2001
Investment
MCB 6.60 15.60 2.00 24.60 Very Aggressive
PTCL 6.60 15.60 1.55 20.55 Very Aggressive
EC 6.60 15.60 0.92 14.88 Defensive
PSO 6.60 15.60 0.62 12.18 Defensive
Year 2002
Investment
PTCL 8.00 17.00 1.74 23.66 Very Aggressive
Javed Mehboob (MBA)

Pakistan (KSE).
MCB 8.00 17.00 1.28 19.52 Very Aggressive

FF 8.00 17.00 0.99 16.91 Defensive
PSO 8.00 17.00 0.95 16.55 Defensive
EC 8.00 17.00 0.10 8.90 Very Defensive
Javed Mehboob (MBA)

Figure 4.1.1
Volatility and R eturn (Year 1998) Figure 4.1.2
Volatility and Return (Year 1999) Figure 4.1.3
V olatility and R eturn (Year 2000) Figure 4.1.4
BetaVolatility
Ke and Return (2001) Figure 4.1.5
V olatility anBeta
d R eturnKe
(Year 2002)
B eta Ke
2.5 Beta Ke 40
2 B eta Ke 35
2.5 35 30
2.51.8 30
2 2 3025
30
1.6 25
1.82 25
2 25
Expected Return
25
Return
1.5 1.4
1.6 20
20
1.2 20
Beta
Return
20
Return
1.4
1.5 20
1.5
Beta
Expected
1
Return
1
Beta Beta
1.2 15 15
Beta
1515
Expected
Expected
0.8
11 10
Expected
0.5 0.6 10
1010
0.8 10
0.4 5
0.6
0.5
0.5 5 55
0 0.40.2 0 5
FF EC PSO PTCL M CB
0.2 0 00
00 0
Com pa nie s
0 FFFF
MCB
PSO
EC
FF
PTCL
M CB
PTCL
EC
PEC
SO MCB
P TCL
PSO 0
Companies
Compa
Com panie
niess
P TCL M CB FF PSO EC
Javed Mehboob (MBA)
Com pa nie s Final Research Report
Pakistan (KSE).
INTERPRETATION
The aggregate market has a beta of 1.0. More volatile (risky) stocks have
betas larger than 1.0, and less volatile (risky) stocks have betas smaller than 1.0.
As a relative measure of risk, beta is very convenient. Beta is useful for
investors to judge a stock risk use comparing the relative systematic risk of
different stocks. Beta is relevant measure of risk that cannot be diversified away
in a portfolio of securities and, as such, is the measure that investors should
consider in their portfolio management decision process.
If the Beta is 1.0, it means that excess returns for the stock vary
proportionally with excess returns for the market portfolio. In other words, the
stock has the same systematic risk as the market as whole. If the market goes up
and provides an excess return of 5 percent for a month, we would expect, on
average, the stock’s excess return to be 5 percent as well. More than 1.0 Beta
indicates that stock’s excess return varies more than proportionally with the
excess return of the market portfolio. Put another way, it has more unavoidable
risk than the market as a whole. This type of stock is often called as aggressive
investment. In this case securities return has been more volatile as market
returns, both up and down. Greater the beta for a stock leads the greater its
systematic risk. This means that for both upward and downward movements in
market excess returns, movements in excess returns for the individual stocks are
greater or less depending on its beta. This risk cannot be diversified away by
Javed Mehboob (MBA)

Pakistan (KSE).
investing in more stocks, because it depends on such things as changes in the
economy and in the political atmosphere, which affect all stocks or market.
If the Beta is less than 1.0, it means that the stock’s excess return varies
less than proportionally with the excess return of the market portfolio. This type
of stock is often called a defensive investment. In this case securities return has
been less volatile as market returns. Beta less than 1.0 indicates that the
expected return on stock will be less than the expected return on market
portfolio.
If the Beta is equal to 1.0, in other words we can say that stock Beta is
equal to market Beta. It means that the stock’s excess return is equal to the
excess return of the market portfolio, where the expected return on stock will be
equal to the expected return on the market portfolio. If the beta is more than
1.50, than this type of investment is called as very aggressive investment. If
beta is more than 1.0 and less than 1.50, therefore this type of investment is
called as aggressive investment. If stock beta is less than 1.00 and more than
0.50, therefore this type of investment is called as defensive investment. If stock
beta is less than 0.50, therefore this type of investment is called as very
defensive investment.
In market equilibrium, a security is supposed to provide and expected
return commensurate with its systematic risk, the risk that cannot be avoided
with diversification. The capital asset pricing model (CAMP) formally describes
Javed Mehboob (MBA)

Pakistan (KSE).
the relationship between risk and return. In this research report there are five
securities have been chosen for analysis. In a year 1998, Fauji fertilizer has the
highest Beta of 2.15 among these five selected securities. It indicated that, on
average, security return is 2.15 times more volatile as market returns. It is an
aggressive or more volatile investment, because its Beta is greater than market
Beta; therefore, the expected return on Fauji fertilizer is 34.45%, which is more
than the expected return on the market portfolio, which is 24.10%. It indicates
that investment in the Fauji fertilizer would be more volatile and be aggressive
or more risky in nature, because its beta is more than the market Beta. In the
same year Engro chemicals has the Beta of 0.93. Lesser the beta for a stock
leads the lower its systematic risk. Therefore, Engro chemicals has the lesser
systematic risk. This type of investment is called as defensive investment,
because its Beta is less than the market Beta. Therefore its expected return is
23.47% and the expected return on the market is 24.10%. Engro chemicals beta
is less than the beta of Fauji fertilizer, therefore its expected return is less than
the expected return on Fauji fertilizers. Pakistan state oils company has the beta
of 0.41 in year 1998; therefore, its expected return is 18.79%, which is less than
the market return. It means that the PSO excess return varies less than
proportionally with the excess return of the market portfolio. It is a defensive
investment. In a year 1998, PTCL has the Beta of 0.38, which is less than the
market Beta. Therefore, its expected return is less than the expected return on
the market. PTCL expected return is 18.52% and it is less than the expected
return on the market as 24.10%. In the same year MCB has the lowest Beta
among the five securities. Its Beta is 0.006. Therefore, its expected return is
Javed Mehboob (MBA)

Pakistan (KSE).
also lowest among theses five securities as 15.15% and the expected return on
the market is 24.10%.it must be called as very defensive investment. As the Beta
decreases, expected return on the security also decreases and as the Beta
increases, expected return on the security increases. Therefore, it should be said
that, there is direct relation between expected return on security and the
systematic risk. It shows if the investor wants extra return than he will has to
take extra risk.
In a year 1999, Fauji fertilizer has the highest Beta among these five
securities. Its Beta is 1.88; therefore its expected return is also highest among
these five securities. Its expected return is 29.42% and the expected return on
the market is 21.50%. This investment is 1.88 times more volatile than the
market. It is a very aggressive investment. It has the highest beta in this year as
1.88; therefore its expected return is also highest in this year among these
securities. In the same year, PSO has the beta of 1.46; its expected return is
25.46%, and the expected return on the market is 21.50%. It is also an
aggressive investment, because its beta is higher than the market Beta.
Therefore, it is 1.46 times more volatile than the market. So that it’s expected
return is more than the expected return on the market. PSO expected return is
less than the expected return of Fauji fertilizer, because PSO systematic risk is
less than the systematic risk of Fauji fertilizer. In a same year PTCL has the
Beta of 0.27; which is less then the market Beta 1.0. Therefore, its expected
return is less than the expected return on the market. Its expected return is
14.93% and the expected return on the market is 21.50%. It is a defensive
Javed Mehboob (MBA)

Pakistan (KSE).
investment. So that its systematic risk is less, in order to that its expected return
is also low. PTCL expected return is less than the expected return of Fauji
fertilizer and PSO, due to lesser Beta. In a year 1999, an Engro chemical has the
Beta of 0.075. It is very defensive investment, because its Beta is lesser than the
market Beta. Therefore, its expected return is also less than the market return.
Its expected return is 13.17% while the expected return on the market is 21.50%.
Its Beta is lesser therefore expected return is also lesser. Low Beta reveals low
return and vise versa. In a year 1999, MCB has the lowest Beta among these
securities; therefore its expected return is also lowest among these securities. Its
Beta is 0.012 and the expected return is 12.61%. It is very defensive investment,
because its systematic risk is very low, that’s why its expected return is also
very low. It indicates that the MCB excess return is less than the excess return
of the market portfolio. This investment is 0.012 times less volatile than the
market. Its Beta is less than the market Beta therefore it is less volatile or
riskier.
In a year 2000, Fauji fertilizer has the highest Beta among these
securities. Its Beta is 1.93 and expected return is 26.17%. The expected return
on the market is 17.80%. Its Beta is higher than the market Beta therefore; its
expected return is also higher than the market return. It is very aggressive
investment, because its Beta is more than the market Beta. In a same year Engro
chemical has the Beta of 1.05 and the expected return is 18.25%. Its Beta is
more than the market Beta therefore its expected return is also more than the
expected return on the market. This investment is 1.05 times more volatile than
Javed Mehboob (MBA)

Pakistan (KSE).
the market. This investment has high systematic risk therefore, it leads high
expected return. Engro chemical Beta is less than the Beta of Fauji fertilizer, so
that its systematic risk is less than the systematic risk of Fauji fertilizer.
Therefore, expected return of Engro chemical is less than the expected return of
Fauji fertilizers. In a year 2000, MCB Beta is 0.18 which is less than the market
Beta. Its expected return is 10.42% and it is less than the expected return on the
market as 17.80%. It is a very defensive investment. MCB has lower Beta, so
that it also has lower expected return. In a same year PSO has a beta of 0.11 and
the expected return is 9.79%. Its Beta is less than the market Beta, so that its
expected return is also less than the expected return on the market. It is a very
defensive investment. This investment is 0.11 times less volatile than the
market, because it has lower systematic risk. Low systematic risk reveals low
returns and vise versa. In a same year PTCL has the lowest Beta among these
securities. Its Beta is 0.07; therefore its expected return is also lowest among
these securities as 9.43%. PTCL expected return is less than the expected return
on the market as 17.80%, because it has lowest systematic risk therefore it leads
lowest expected return. It is a very defensive investment.
In a year 2001, Muslim commercial bank has the highest Beta among these
five securities. Its Beta is 2.00; therefore its expected return is also highest
among these five securities. Its expected return is 24.60% and the expected
return on the market is 15.60%. This investment is 2.00 times more volatile than
the market. It is a very aggressive investment. It has the highest beta in this year
as 2.00; therefore its expected return is also highest in this year among these
Javed Mehboob (MBA)

Pakistan (KSE).
securities. In the same year, Fauji fertilizer has the beta of 1.80; its expected
return is 22.80%, and the expected return on the market is 15.60%. It is also an
aggressive investment, because its beta is higher than the market Beta.
Therefore, it is 1.80 times more volatile than the market. So that it’s expected
return is more than the expected return on the market. Fauji fertilizer expected
return is less than the expected return of MCB, because Fauji fertilizer’s
systematic risk is less than the systematic risk of MCB. In a same year PTCL
has the Beta of 1.55; which is more then the market Beta 1.0. Therefore, its
expected return is more than the expected return on the market. Its expected
return is 20.55% and the expected return on the market is 15.60%. It is a very
aggressive investment. So that its systematic risk is high, in order to that its
expected return is also high. PTCL expected return is less than the expected
return of MCB and Fauji fertilizer, due to lesser Beta or lower systematic risk.
In a year 2001, an Engro chemical has the Beta of 0.92. It is defensive
investment, because its Beta is lesser than the market Beta as 1.0. Therefore, its
expected return is also less than the market return. Its expected return is 14.88%
while the expected return on the market is 15.60%. Its Beta is lesser therefore
expected return is also lesser. Low Beta reveals low return and vise versa. In a
same year, PSO has the lowest Beta among these securities; therefore its
expected return is also lowest among these securities. Its Beta is 0.62 and the
expected return is 12.18%. It is also defensive investment, because its
systematic risk is very low, that’s why its expected return is also very low. It
indicates that the PSO excess return is less than the excess return of the market
portfolio. This investment is 0.62 times less volatile than the market. Its Beta is
Javed Mehboob (MBA)

Pakistan (KSE).
less than the market Beta therefore it is less volatile or riskier. Therefore
expected return of PSO is lowest among these securities.
In 2002, PTCL has the highest Beta among these securities. Its Beta is
1.74 and expected return is 23.66%. The expected return on the market is
17.00%. Its Beta is higher than the market Beta therefore; its expected return is
also higher than the market return. It is very aggressive investment, because its
Beta is more than the market Beta. PTCL is 1.74 times more volatile than the
market, because its systematic risk is very high and it leads high return. In a
same year Muslim commercial bank has the Beta of 1.28 and the expected return
is 19.52%. Its Beta is more than the market Beta therefore its expected return is
also more than the expected return on the market. This investment is 1.28 times
more volatile than the market. This investment has high systematic risk
therefore, it leads high expected return. MCB Beta is less than the Beta of
PTCL, so that its systematic risk is less than the systematic risk of Fauji
fertilizer. Therefore, expected return of MCB is less than the expected return of
PTCL. In a same year, Fauji fertilizer Beta is 0.99 which is less than the market
Beta. But the difference between market Beta and Fauji fertilizer Beta is only
0.01. It is very minor difference. Therefore the difference between its expected
return and the expected return on the market is also very low. Its expected
return is 16.91% and the expected return on the market is 17.00, the difference
is only of 0.90. It is also a defensive investment. It is 0.99 times less volatile
than the market. In a same year PSO has a beta of 0.95 and the expected return
is 16.55%. Its Beta is less than the market Beta, so that its expected return is
Javed Mehboob (MBA)

Pakistan (KSE).
also less than the expected return on the market. It is a defensive investment.
This investment is 0.95 times less volatile than the market, because it has lower
systematic risk. Low systematic risk reveals low returns and vise versa. In a
same year Engro chemical has the lowest Beta among these securities. Its Beta is
0.10; therefore its expected return is also lowest among these securities as
8.90%. Engro chemical expected return is less than the expected return on the
market as 17.00%, therefore it has lowest systematic risk and it leads lowest
expected return. It is a very defensive investment. This investment is 0.10 times
less volatile than the market.
It is concluded that market beta is always equal to 1.0. If the stock’s beta
is equal to the market beta than the expected return on stock must be equal to
the expected return on the market portfolio. It means that the stock’s excess
return is equal to the excess return of the market portfolio; therefore, this
security provides same return as the market portfolio return. If the investment is
aggressive, means the beta of sock is greater than 1.0. Therefore it would be
more volatile and riskier; it shows that it has high systematic risk, so that the
expected return on stock would be greater than the expected return on the market
portfolio. It means high risk leads high return. If the investment is defensive,
means, stock Beta is less than the market Beta. Therefore it has less systematic
risk or less volatile, therefore, the securities expected return would be less than
the expected return on the market portfolio. This type of stocks are less risky
and less volatile, therefore, the expected return on stock would be the lesser. It
shows that low risk leads low return. According to the above analysis risk and
Javed Mehboob (MBA)

Pakistan (KSE).
return have the direct relation, therefore, if the investor wants high return than
he has to bears the high risk, in other words investor has to choose aggressive
investments, On the other hand if the investor is risk averse and doesn’t want to
take high risk than investor has to go for defensive investment. Where the risk is
lesser and it also leads low return.
CONCLUSION
The objective of this research report is to elaborate and explain the
relationship between risk and return. The analysis has been conducted on the
basis of monthly data of last five years. All the analyses are based on KSE.
In the light of analysis, it has been concluded that Risk can affect the
stock prices in two ways, either it can be positive or negative. If there is
positive affect than investor gets capital gain and, if there is negative affect than
investor suffers capital loss. Risk can not be eliminated at all. It can be
minimized but can’t be eliminate entirely. Risk is a chance. Therefore risk can
Javed Mehboob (MBA)

Pakistan (KSE).
move both the sides either positive or negative. By examining these analyses it
is concluded that high risk reveals high return and low risk leads low return.
When investor takes high risk ultimately he gets high return. Beta is measure of
volatility or systematic risk, it is concluded by using CAMP approach that high
beta leads high return while the low beta reveals low return. It means high risk
leads high return and low risk leads low return. If the investment is volatile,
than the stock Beta would be more than the market Beta, and leads high
expected return of stock than the expected return on the market portfolio, and
the vise versa. According to the above analysis risk and return have the direct
relation; therefore, if the investor wants high return than he has to bears the
high risk, in other words, he has to choose aggressive investments. On the other
hand if the investor is risk averse and he doesn’t want to take high risk than he
has to go for defensive investment. Where the risk is lesser and it also leads low
return.
REFERENCES
Fama and French, “The Cross-Section of Expected Stock Returns,” Journal of
Finance (June 1992), 427-65.
Javed Mehboob (MBA)

Pakistan (KSE).
Capital Asset Pricing Model (CAPM): Test on Weekly Data from the Helsinki
Stock Exchange. Journal of Business Economics 1997, Vol 46, No 04.
The Finnish Equity Market: Recent Trends and Important Events. Economic
Papers 1998, Vol 11, No 01.
Expected Stock Return and Volatility: Journal of Financial Economics
(September 1987), 3-29
The Economic Value of Volatility Timing: Jeff Fleming, Chris Kirby, and
Barbara Ostdiek… The journal of finance, VOL LVI, NO. 1. February 2001.
Return, Risk and Correlation of Emerging Stock Markets: By Steven Le.
California State University, Long Beach.
Animal Spitits, Margin Requirements, And Stock Prices Volatility:
Paul H Kupiec and Steven A. Sharpe… The journal of finance VOL XLVI. NO. 2
June 1991.
Multidimensional Risk And the Modigliani-Miller Hypothesis: Robert W. Resek.
Monetary Environments And International Stock Returns: C. Mitchell Conover,
Gerald R. Jensen, Robert R. Johnson…”Department of Economics and Finance,
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Pakistan (KSE).
University of North Carolina at Wilmington, Wilmington, NC 28403, USA…
Journal of banking and finance 23 (1999) 1357-1381.
Information Diversity And Market Behavior: Stephen Figlewski…The journal of
finance VOL XXXVII. NO March 1982.
Do Markets Overreact: International Evidence: Ahmet Baytas, Nusret Caklol…
Montclair State University, School of Business Administration, Department of
Economics and Finance, Upper Montclair, NJ 07043, USA…Journal of banking
and finance 23 (1999) 1121-1144.
New-Issue Stock Price Behavior: J. G. McDonald and A. K. Fisher.
Risk And Return In Global Equity Market: John F. O. Bilson…Stuart School of
Business, Chicago. June (1998).
Stock Market Volatility A Psychological Phanomenon: David Barrett~Senior
Sophister… Shiller, R. J. (1990) Market Volatility - pages 1-4, 71-76, 197- 214,
MIT Press, London.
International Encyclopedia Of Stock Market: Reviewed in Library Journal, May
1999:
Stock Market Volatility: G. William Schwert…Financial analyst journal, 46
(May-June 1990) 23-34 (Graham and Dodd Plaque).
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Pakistan (KSE).
Hussain, F. and Uppal J. “The Distribution of stock Returns in an Emerging
Market: The Pakistani Market.” Pakistan Economic and Social Review. XXXVI:I
(Summer 1998) 47-72.
Hussain, F. “The Day of the Week Effect in the Pakistani Equjity Market: An
Investigation.” Unpublished.
Hussain, F.” Stock Returns and Stock Market Volatility.” Unpublished.
Nishat, M and Saghir A. “The Stock Market and Pakistan Economy: 1964-87.”
Savings and Development 2(15) (1991).
Khilji, N., M. “The Behavior of Stocks Returns in an Emerging Market: a case
Study of Pakistan.” The Pakistan Development Review,32:4 Part II (Winter
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Markets in Pakistan. “ The Pakistan Development Review. 33:4 Part II (Winter
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The Pakistan Development Review.
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Stock Market Return and Volatility. (Quaid-e-Azam University).
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An Analysis of Stock Market Behavior: Risk, Return, and Stock Market Volatility In 1

Introduction and Background

1.1 Objective of the study 07

2.1 Empirical Evidence from Developed Markets 11

Research Methodology and Design

Javed Mehboob (MBA)

Javed Mehboob (MBA)

INTRODUCTION AND BACKGROUND

Stock markets play an important role in facilitating productive investment

intermediated, resource allocation should be more efficient.

The existence of an efficient equity market, an integral part of financial

system, is a pre-requisite for the smooth functioning of an economy. The equity

development programs and play an important role in mobilizing institutional and

individual saving and channeling these to the productive activities of the

economy. An efficient equity market therefore helps in expanding the

economic growth and development; the existence of a vibrant equity market is

and complementing the productive activities of the economy by performing

funding exigencies of business and industry. Thus stock markets help in

Javed Mehboob (MBA)

opportunities and increasing national output and per capita income.

Stock exchanges also provide necessary stimulant to institutions working

mainly to attract savings and to utilize them profitably for industrial

the existence of the stock markets become indispensable.

At the time of independence, there were only a few industries in Pakistan

Commercial banks were mostly engaged themselves in financing commercial

operations. The establishment of State bank of Pakistan in 1948 as the central

government had taken steps to setup a stock exchange at Karachi in September

later established in Pakistan at Lahore and Islamabad in 1970 and 1992

Javed Mehboob (MBA)

orders at their exchange to the Karachi stock exchange floor.

fluctuations in stock prices are not an unusual phenomena however, such

declines from 1040.19 to 789.15 and trading volume from Rs 16 million to Rs 9

occurred due to uncertainty. Focusing on the reasons for such fluctuations is

intrusive, and likely to have important implications. Nevertheless, the KSE

offers an interesting set of circumstances to test the nature of market volatility.

Javed Mehboob (MBA)

Pakistan used number of measures in order to develop its capital markets,

the major measures include economic liberalization, regulatory changes in

foreign exchange controls, repatriation of profits and privatization of public

international investors during 1991. However, the equity market in Pakistan is

developments. Like, following the loan agreement with international monetary

and debt rescheduling arrangements are in the process.

Pakistani equity market to international investors has exposed it to frequent

almost all stock markets of the world, small as well as large.

The average investors are risk averse, his/her objective is to maximize

what matters in the individual’s investment decision is the perception rather

investment decision investors consider expected return and expected volatility

Javed Mehboob (MBA)

usually governed by information. While the systematically disseminated

information determines the ling-term trend and underlying strength of the

market, the information that comes as a surprise event—the so called good or

course of events in the stock markets.

One relevant question is always remained on the forefront of financial

A possible answer is given by the postulate that returns on stocks include a

1.1 OBJECTIVE OF THE STUDY

The study is undertaken to address the following issues pertaining to

activities at the KSE.

Javed Mehboob (MBA)

 To verify how risk affects the selected stock prices?

 To verify the relationship between risk and return of selected

 To verify nature of volatility in selected stocks, and how volatility

affects the selected stock Returns?

1.2 PROBLEM STATEMENT