Influence of economic and non-economic factors on firm level equity premium: Evidence from Pakistan

Muhammad Imran (), Mengyun Wu (), Shuibin Gu (), Shah Saud () and Muhammad Abbas ()
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Muhammad Imran: Jiangsu University
Mengyun Wu: Jiangsu University
Shuibin Gu: Jiangsu University
Shah Saud: Beijing Institute of Technology
Muhammad Abbas: Jiangsu University

Economics Bulletin, 2019, vol. 39, issue 3, 1774-1785

Abstract: This paper examines the relationship between economic, non-economic factors and equity premium in Pakistan stock market using annual data of 306 non-financial firms. Equity premium is considered as one of the most important factors in finance literature. Information of the equity premium is a significant statistic for the resourceful distribution and valuation of capital resources. We explored firm level equity premium and its multi level determinants in the context of Pakistan stock market. We have considered a set of economic (micro and macro variables) and non-economic factors including terrorism and political instability as determinants of firm level equity premium. During the selected sample period the average market premium of Pakistan Stock Exchange (PSX) KSE100 Index was 20 percent. However, the average firm-level equity premium of individual firms was 8 percent. The estimated result shows that there is a significant impact of company fundamentals and macroeconomic factors on firm level equity premium. Additionally, terrorism, political instability, government regime change and financial crises also severely affect the firm level equity premium. Overall company fundamental (micro level factors) have more effect on EP followed by Non- Economics and Macroeconomic variables.

Keywords: Firm Level Equity Premium; Economic; Non-Economic; Terrorism; Political Stability (search for similar items in EconPapers)
JEL-codes: G1 N4 (search for similar items in EconPapers)
Date: 2019-07-19
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