Default Risk Pricing – An evidence from Pakistan
Download| Volume 3 Issue 1 2022 | |
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| Author(s): |
Jamil Ahmed
Vijay Kumar
Hammad Javed
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| Abstract | This study aims to estimate the default risk and its pricing implications in Pakistan, where an effort has been made to use a sophisticated model, i.e., Logit based hazard model by Campbell (2011) to estimate default, as the majority of literature available in Pakistan is based on accounting models and lack pricing implications on equity. The study covers data from the 2000-2019 period using all listed companies on Pakistan Stock Exchange. It uses decile portfolios sorted on default risk to understand the time series implication of CAPM, Fama-French Three Factor and Five Factor Models on the default risk pricing of equities. The results suggest that default risk is a significant sorting criterion for portfolios, and Fama French Five Model significantly captures the risk premium in equally weighted portfolios. Still, value-weighted portfolios do not show premium earnings with negative alpha’s across decile portfolios. Thus, the results are significant for portfolio managers and diversified investors in devising the portfolios and investment strategies |
| Keywords | Default Risk, Equity Pricing, Logit Models, Equity Pricing |
| Year | 2022 |
| Volume | 3 |
| Issue | 1 |
| Type | Research paper, manuscript, article |
| Recognized by | Higher Education Commission of Pakistan, HEC | Category | "Y" | Journal Name | ILMA Journal of Social Sciences & Economics | Publisher Name | ILMA University | Jel Classification | - | DOI | http://dx.doi.org/ | ISSN no (E, Electronic) | 2790-5896 | ISSN no (P, Print) | 2709-2232 | Country | Pakistan | City | Karachi | Institution Type | University | Journal Type | Open Access | Manuscript Processing | Blind Peer Reviewed | Format | Paper Link | http://ijsse.ilmauniversity.edu.pk/arc/Vol3/pdf/1.pdf | Page | - |