تلخیص
This study extends the downside risk applications in multifactor asset pricing model by incorporating
the downside risk spillovers from economic and financial factors to stock returns. We amplify the
conventional APT model by replacing the variance-based betas with semivariance based downside
betas that better capture the risk volatilities in varying market conditions. The inclusion of downside
risk betas based on semivariance and semideviation methods in the augmented asset pricing model
improves both the theoretical and methodological applications relative to the limitations and
restriction of conventional APT factors model. The mean-variance hypothesis replaced by meansemivariance hypothesis and asymmetric behaviour of stock returns distribution, empirically suggest
the use of an alternative factors model. The models based on downside risk premia for asset pricing
in emerging markets. The study tested the downside risk-return relationship based on the excess
monthly stock returns of listed PSX firms and observed economic, financial and global factors
representing spillover triangulation from 1997 to 2017. The findings of the study indicate that the
augmented DR-APT model with pricing restrictions of unconditional linear factors method could not
be deserted over the targeted period of study. The selected observed pricing factors except exports
are significant enough for pricing the security returns in the augmented DR-APT Model. Findings of
the panel regression, likelihood ratio tests and F-test corroborate DR-APT as a better model to price
stock returns in volatile situations compare to conventional APT model. Our findings are consistent
with the downside risk-return framework based on mean semi variance hypothesis and have
implications for managers and decision markets that incorporate downside risk in asset valuation,
cost of capital estimations, portfolio construction and investment analysis decisions.
Syed Asim Shah, Hassan Raza, Aijaz Mustafa Hashmi. (2020) Asset Pricing Through Downside Risk Based Arbitrage Pricing Theory: Empirical Evidence From Pakistan Stock Exchange, Abasyn Journal of Social Sciences, Volume-13, Issue-2.
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