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Financial leverage and stock returns: evidence from an emerging economy1

Ekonomska istraživanja, 2016-01, Vol.29 (1), p.85-100

2016 The Author(s). Published by Taylor & Francis 2016 ;ISSN: 1331-677X ;EISSN: 1848-9664 ;DOI: 10.1080/1331677X.2016.1160792

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  • Title:
    Financial leverage and stock returns: evidence from an emerging economy1
  • Author: Mirza, Nawazish ; Rahat, Birjees ; Reddy, Krishna
  • Subjects: book to market ; financial leverage ; Size
  • Is Part Of: Ekonomska istraživanja, 2016-01, Vol.29 (1), p.85-100
  • Description: The aim of this research was to examine the propositions of Campbell et al. and Mirza et al. on pricing of leverage in stock returns using a comprehensive set of firms listed on the Karachi Stock Exchange (KSE) over a period of 13 years. Our results suggest that while size, value and, more importantly, financial leverage are systematic in nature, market risk premium is not a relevant factor. The results confirm the notion of leverage premium and have important implications for financial managers, investment analysts and other market participants who use asset pricing frameworks for investment appraisals. These findings have global relevance, notably for other emerging and developing economies where default risk is of importance due to cyclical nature of cash flows and low recovery rates owing to weaknesses of legal structure.
  • Publisher: Routledge
  • Language: English
  • Identifier: ISSN: 1331-677X
    EISSN: 1848-9664
    DOI: 10.1080/1331677X.2016.1160792
  • Source: Taylor & Francis Open Access
    ProQuest Central
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