• ISSN(P) : 2708-2474
  • ISSN(E) : 2708-2482
  • ISSN(L) : 2708-2474



Impact of WACC in Elucidation of Cross Sectional Stock Returns by Stylized Portfolios: Pragmatic Evidence from Pakistan Stock Exchange

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The fundamental structure of the present theory of asset pricing underscored clarifying the path as to how the systematic risk is estimated and how investors are adapted to behavior for such risk. The mixed expense of debt and equity that an association should procure to raise funds for its assignments impacts its stock returns through investment choices and is an additional significant segment of business valuation work on the grounds that for putting resources into more risky resources, investors request better yields or higher returns, for legitimizing better yields this risk premium emerging from such risks is included in the returns. Hence, in clarifying portfolio returns, the three-factor model is increased with WACC to analyze its logical force that if WACC is estimated by the market or not through multivariate regressions. Two principle results are deduced by the examination; first; the findings attest to the presence of market premium, size impact, value impact, WACC premium in the equity market of Pakistan. Second, however generally exciting with exceptional interest, when contrasted with FF unique 3-factor model, the models which join WACC outperformed, which also affirmed from Adj.R2 results.


1-Maria Sultana
Assistant Professor, Department of Business Administration, Lahore Leads University, Lahore, Punjab, Pakistan.

2-Muhammad Imran
Assistant Professor, Department of Business Administration, Qurtuba University, Dera Ismail Khan, KP, Pakistan.

3-Muhammad Amjad Saleem
Associate Professor, Government Commerce College Dera Ismail Khan, KP, Pakistan.


Asset Pricing Theory, CAPM, APT, FF Three Factors Model, Size Effect, Value Effect, WACC Effect

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IV - I

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This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Published: Dec 2019

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