Capital market research in Pakistan

Shahab ullah(55)
BBA(HONS) Semester 8th
Institute of management studies
University of Peshawar.

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Abstract:-
For a long time, the relationship between corporate social performance and
corporate financial performance has been a topic of unceasing debate. In this
study, I investigate the financial performances of the Global 100 most sustainable
corporations applying the portfolio approach to the most sustainable corporations
in the whole market as well as ten individual industries and eleven separate
countries. The market performance (share prices) of companies servesas the
measure of corporate financial performance, since the accounting measures are
not suitable for comparisons across different industries. The findings show that
sustainability does enhance corporate financial performance, as significant
outperformances of portfolios composed of sustainable corporations are
identified in different levels of benchmarks. In particular, the financial
performance of industry specified portfolios of the most sustainable corporations
display strong evidence that the effects of the sustainability on financial
performance rely substantially on industry characteristics, which appear to be the
relevance of the final consumer and the opportunity for substantial eco-efficiency
gains. The results have implications for managers, investors and the society;
corporation managers should have less concerns that the implementation of
sustainable operations would decrease corporate financial performance as the
fact revealed is the sustainability does enhances the corporate financial
performances. Investors are not very likely to profit from the information once it is
published, however, investors might have the opportunity to earn higher rate
of return if they are able to differentiate the better sustainability performers from
the lower performers before the annual publication of the Global 100 list. Given
these incentives, society and the natural environment are more likely to benefit
from more sustainable corporate behaviour

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Introduction

capital market
A capital market is a market for securities (debt or equity), where business
enterprises (companies) and governments can raise long-term funds. It is defined
as a market in which money is provided for periods longer than a year,[1][dead
link]
as the raising of short-term funds takes place on other markets (e.g.,
the money market). The capital market includes the stock market (equity
securities) and the bond market(debt). Financial regulators, such as the
UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange
Commission (SEC), oversee the capital markets in their designated jurisdictions
to ensure that investors are protected against fraud, among other duties.

Capital markets may be classified as primary markets and secondary markets. In

primary markets, new stock or bond issues are sold to investors via a mechanism
known as underwriting. In the secondary markets, existing securities are sold and
bought among investors or traders, usually on a securities exchange, over-the-
counter, or elsewhere.

financial market
a financial market is a mechanism that allows people to buy and sell (trade)
financialsecurities (such as stocks and bonds), commodities (such as precious
metals or agricultural goods), and other fungible items of value at low transaction
costs and at prices that reflect the efficient-market hypothesis.

Both general markets (where many commodities are traded) and specialized
markets (where only one commodity is traded) exist. Markets work by placing
many interested buyers and sellers in one "place", thus making it easier for them
to find each other. An economy which relies primarily on interactions between
buyers and sellers to allocate resources is known as a market economy in
contrast either to a command economy or to a non-market economy such as
a gift economy.

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Hypothesis
The hypothesis that there is no validity to the specific claim that two variations
(treatments) of the same thing can be distinguished by a specific procedure.

the efficient-market hypothesis (EMH) asserts that financial markets are

"informationally efficient". That is, one cannot consistently achieve returns in
excess of average market returns on a risk-adjusted basis, given the information
publicly available at the time the investment is made.

There are three major versions of the hypothesis: "weak", "semi-strong", and
"strong". Weak EMH claims that prices on traded assets (e.g., stocks, bonds, or
property) already reflect all past publicly available information. Semi-strong EMH
claims both that prices reflect all publicly available information and that prices
instantly change to reflect new public information. Strong EMH additionally claims
that prices instantly reflect even hidden or "insider" information. There is
evidence for and against the weak and semi-strong EMHs, while there is
powerful evidence against strong EMH.

Objectives:
1. To allow for the efficient allocation of capital across industries, and
by extension, society as a whole.

2. To enable income smoothing over time by letting some borrow from

future earnings for consumption today and others lend today in the hopes
of higher consumption in the future.

3. To promote awareness of the Association and its activities and to

seek and promote awareness of future challenges and opportunities for
the financial and capital markets in Asia and elsewhere.

4. plays an important role in helping to ensure that capital markets

function effectively. The core objectives of securities regulation are to

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 promote investor protection, enhance economic efficiency by allocating
capital to its best uses,

contribution:
In the contemporary global scenario, a large part of the responsibility of
economic development has been shifted to corporate sector from the
governmental agencies. The entire structure and growth of the corporate sector
depends on the transparent and prudent financial system. An incorrect judgment
regarding the financial patterns in corporate sector may be a cause of heavy
distortion in the society by means of volatilities in the stock markets, employment
opportunities, distribution of income, and demand-supply gap in the community
markets. In the present economic structure, overall economic growth depends on
the performance of corporate sector, while the financial resources of corporate
sector are determined by the performance, gravity and strength of the financial
markets in a country. As a leading role is envisaged for private sector, financial
policies have to be geared towards capital market development, besides the
institutionalization of an effective regulatory framework. Capital market is a sub-
set of financial markets, which provides a linkage between the users and
suppliers of the funds for long-term investment. A capital market mainly consists
of stock (equity) and bonds markets. For macro economic management and
development planning, an efficient stock market can play at least the following
three pivotal roles:
i) It can reflect the levels of overall and as well sectoral development, by means
of the market indices and valuation ratios
ii) It can mobilize the funds from the domestic and external sources to the
priority sectors of the economy
iii) It provides the indications, guidelines and information to the investors for
their investment decision-making. An efficient stock market develops a path
for smooth, simple and transparent opportunities of investment without
undue risk and gambling factors

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Security Pricing in an Imperfect Capital Market
A perfect capital market is a key assumption in recent theories of security pricing.
It is assumed that the costs of transactions, information-gathering, and portfolio
management are all zero, and that no investor is so large as to exert an
appreciable effect on either the risk-free interest rate or the yield on risky
securities. If, in this perfect capital market, investors have identical decision
horizons and homogeneous expectations, then there is a unique optimal portfolio
of risky securities. Since this unique portfolio must include every security in
proportion to its relative valuation in the capital market, it is referred to as the
“market” portfolio. When the capital market reaches equilibrium, the expected
return of every security will be a linear function of the expected return of the
market portfolio. From this relationship Lintner and Mossin have separately
derived valuation formulas that express the market price of a security as a
function of the security[s end-of-period expected value, its risk as measured by
the variance and covariances of this end-of-period value, the market price of risk
within the portfolio, and the risk-free rate of interest.( James C.T. Mao)

How does capital market line differ from security

market line?

the capital market line (CML) is a line used in the capital asset pricing model to
illustrate the rates of return for efficient portfolios depending on the risk-free rate
of return and the level of risk (standard deviation) for a particular portfolio.

The CML is derived by drawing a tangent line from the intercept point on the
efficient frontier to the point where the expected return equals the risk-free rate of
return.

The CML is considered to be superior to the efficient frontier since it takes into

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account the inclusion of a risk-free asset in the portfolio. The capital asset pricing
model (CAPM) demonstrates that the market portfolio is essentially the efficient
frontier. This is achieved visually through the security market line (SML).

The security market line is a line that graphs the systematic, or market, risk
versus return of the whole market at a certain time and shows all risky
marketable securities.

: ://wiki.answers.com9

capital market securities risk:

Perhaps the single most important measure of stock risk or volatility is a

stock's beta. It's one of those at-a-glance measures that can provide serious
stock analysts with insights into the movements of a particular stock relative to
market movements.

In this article, we're going to first attempt to define the concept of beta values,
including some of the theory upon which it's based. Next, we're going to talk
about the pros and cons of the measure, while providing insights into the correct
use of beta values when analyzing a stock. Finally, we're going to finish up with
a practical explanation of how to calculate beta, as well as a link to a
spreadsheet you can use to calculate these values yourself.

Beta rules:
The concept of beta is fairly simple; it's a measure of individual stock risk relative
to the overall risk of the stock market. It's sometimes referred to as financial
elasticity. The measure is just one of several values that stock analysts use to
get a better feel for a stock's risk profile. As we'll see later on in our discussion,
the beta value is calculated using price movements of the stock we're analyzing.

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Those movements are then compared to the movements of an overall market
indicator, such as a market index, over the same period of time….

Capital market research:

It is an essential activity for companies because it enables them to provide
products and services that are useful for the targeted consumers
Such a focused and logical approach enhances the profit making possibilities of
companies. The companies can earn more dividends and at the same time
minimize risks as a result of research on capital markets.

One big advantage of capital market research is establishment of proper

communication between the companies and the customers. The customer
reactions to various services provided by the companies can be measured as a
result of capital market research. The companies can thus do away with wrong
policies and look to take the right steps. The companies can also locate the right
opportunities through market research. If the company undertakes capital
market research before launching a new product or service then it stands a
better chance of getting a good return……