Dual Beta Modeling of Karachi Stock Exchange

Abstract

In the past three decades, the documentation of many features of returns in equity market has been noticed. But less attention has been paid to the feature attacks more commenting else, namely that there are extensive periods of time when equity prices rise and fall colloquially, these periods of time referred to as bull and bear markets respectively. The purpose of this research is to study the betas in the bull and bear market condition for a sample of stocks in the Karachi Stock Market (KSE), major stock market in Pakistan. The data consist of daily returns of two major sectors (Petroleum & Commercial banks) of KSE during the period of February 1997 to December 2007. The data pertains to the daily adjusted closing prices of 15 scripts that form a part of KSE index. This paper investigates whether betas of bull and bear market are statistically different from each other? KSE does not integrate any distribution so we use t-statistics.  Analysis shows that beta is higher when the market is bearish than that when market is bullish for nine stocks while the reverse is true for other six stocks.

Keywords: Portfolio Beta, Portfolio Returns, KSE, Dual Beta