IMPACT OF MACROECONOMIC FACTORS ON EQUITY PREMIUM: VALIDATION THROUGH ARBITRAGE PRICING THEORY EVIDENCE FROM PSX

Abstract

Current study explores the relationship of macroeconomic variables and firm level equity premium of 349 Pakistan stock exchange listed firms. Theoretically underlying model is supported by Arbitrage pricing theory. Panel random effect method result concludes that government stability, terrorism, climate change, and financial crisis negatively significantly impact the firm level equity premium. While Pedroni panel co-integration shows long run association among underlying variables. Results of current study provides theoretical and practical research implications for academia and decision makers.