Exploring time variation of stock betas in Pakistan

This paper provides an assessment on the systematic risk in the equity capital markets of Pakistan. We investigate the possibility of time varying betas in Pakistan using three estimation techniques: (a) a Constant Conditional Correlation GARCH Approach, (b) a Dynamic Conditional Correlation GARCH Approach, and (c) a Principal Component Analysis approach. A sample of returns on the top 38 firms listed at the Karachi Stock Exchange (KSE) over the period 1998-2005 is used as a platform to evaluate the performance of these three approaches. An in-sample forecast evaluation of various approaches is employed which shows the superiority of the GARCH approach.