11th Economics & Finance Conference, Rome

INFLUENCE OF ECONOMIC AND NON ECONOMIC FACTORS ON FIRM LEVEL EQUITY PREMIUM: EVIDENCE FROM EMERGING ECONOMY

MUHAMMAD IMRAN, MENGYUN WU

Abstract:

Equity premium is considered as one of the most important factor in finance literature. Information of the equity premium is a significant statistic for the resourceful distribution and valuation of capital resources. In this study we explores firm level equity premium and its multilevel determinants in context of Pakistan stock market. We consider a set of economic and non economic factors including terrorism and political instability as determinants of firm level equity premium. We use a sample of 306 firm level data for this study. During the selected sample period the average market premium of Pakistan Stock Exchange (PSX) KSE100 Index is 20 percent. However, the average firm level equity premium of individual firms is 8 percent. The estimated result shows that there is a significant impact of company fundamental, macroeconomic factors. Additionally, terrorism, political instability, regime change and financial crises also severely affect the firm level equity premium. Overall company fundamental has more effect on EP followed by Non Economics and Macroeconomic variables

Keywords: Firm Level Equity Premium, Economic, Non-Economic, Terrorism, Political Stability