Financial Risk And Share Price Behavior
Sobia Quayyoum, Dr Arshad Hassan, Dr Szabo Zoltan
Keywords: Financial risk, exchange rate, interest rate, share price behavior, macroeconomic variables, monetary variables.
Abstract: Financial risk fluctuations have a significant effect on overall economy. Macroeconomic variables and stock return are related to each other. Financial risk and share price behavior has been investigated in this dissertation. For this purpose, monthly data from 2003 to 2012 and annual data for period of 2003 to 2012 has been used. The stock return data of 115 companies has been used as dependent variable where as exchange rare, interest rate, financial exposure, firm size, total risk, growth rate and profitability has been used as independent variable. This study employs multivariate regression analysis. This study is focused on financial risk and it impact on firm through different dimensions, first on industry level , then on firm level and lastly analysis for exporting and non-exporting firms has been done. The industry level analysis shows that statistically significant negative relationship exists between exchange rate, interest rate and stock return. The relationship of total risk, foreign exposure, firm size and growth rate is found insignificant with industry returns. The firm level analysis is done from different dimensions. The interest rate is negatively related to monthly returns of the firm and this relationship is found significant. The relationship of total risk, foreign exposure, firm size and growth rate is found insignificant with firm level stock returns. For exporting and non-exporting firms, the study shows positive relationship between interest rate and firm stock returns, and this relation is stronger in exporting firms as compare to other firms operating in same industry. Whereas negative relationship between exchange rate and firm stock return. Thus this dissertation is a spatial extension of the previous researches. Instead of taking the all monetary variables like previous research, this research’s focus on firm analysis by using two factor model.
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