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Title Impact of Risk Management Practices on Stock Returns: Evidence from Pakistani and Chinese Banks

Author(s) Kashif Ali

Abstract This study examines the impact of Risk Management Practices (Size Premium,Value Premium, Market Premium, Liquidity Premium, Credit Risk Premium, Capital Adequacy Ratio and Operational Risk) on equity returns by applying fama and French augmented seven factor model. In addition to literature, this study aims to explore non-conventional anomalies in asset pricing domain such as Liquidity Premium, Credit Risk Premium, Capital Adequacy Ratio and Operational Risk are considered as important aspects of Risk Management Practices and there is need to identify the impact of such factors on equity returns in banking sector of Pakistan and China. The sample size is 24 banks of Pakistan and 16 banks of China due to data availability and data for the period of 2008 to 2017. Multivariate regression is used by incorporating market premiums, size premium, value premium, Liquidity premium, Credit risk premium, Capital adequacy ratio and Operational Risk to measure the risk return relationship in Pakistan’s banks and Chinese banks. An analysis of results reveal that all the factors i.e NPL, CAR, HML are found insignificant for Pakistan except size premium and liquidity premium and operational risk premium which are partially contributing for some portfolios. On the contrary, for China HML, NPL and MKT and CAR is some how significant and positive but partially, not for all portfolios. It enlighten the fact that Chinese banks partially pricing more factors than Pakistan’s banks. Therefore, this seven factor model facilitates investors in making valuable decisions about investments and resource allocation in emerging economy like Pakistan and China. Keywords: CAPM; Value effect; Liquidity premium; Credit risk premium; Operational risk; Capital adequacy ratio; Multivariate regression

Type Thesis/Dissertation MS

Faculty Management Sciences

Department Management Sciences

Language English

Publication Date 2020-06-01

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