Alternative beta risk estimators and asset pricing tests in emerging markets: The case of Pakistan

This paper tests and compares the applicability of two asset pricing models specifically, the CAPM and the Fama–French three factor models for an emerging stock market namely, Pakistan. The paper analyses a number of beta risk estimators, including OLS, the Dimson thin trading estimator, a trade-to-trade estimator and a sample selectivity estimator. To uncover any possible influence of the return interval and the type of the market index, the analysis is carried out on three data frequencies namely daily, weekly and monthly as well as for a value and an equally weighted market index. The alternative beta estimators appear to correct thin trading bias but their effects on asset pricing tests are not visible. Moreover contrary to the expectations the test results for monthly and weekly frequencies are not promising. Instead for daily data the cross-section of returns are explained by a number of risk factors and trading volume.