ANALYSIS AND FORECASTABILITY OF MARKET MODEL: EVIDENCE FROM PAKISTANI MARKET INDEX AND EMERGING MARKET INDEX

Abstract

Purpose of the Study: This study examines and analyzes the influence of the Market Model on the Market Level Return (KSE-100 index) and the Emerging Market Level Return (MSCI Index). Methodology: The study has employed the sample data of the companies’ representatives of the Oil and Gas Sector of Pakistan from July 2001 to June 2018 respectively. For estimation, the Panel Regression techniques are employed followed by the Forecast Error Statistics for the in-sample forecast ability of the variables under study. Main Findings: The results of the study depict that the Market Model comprising of the Market Value Financial Ratios strongly influences the returns of the Emerging Market Index relative to the Market Level Return respectively. Similarly, the predictive power of the Market Model is more influential at the Emerging Market Level Return but not less at Market Level Return. Application of the Study: The findings of the study suggest that the domestic and foreign investors may consider the Market Value Financial Ratios for the valuation and estimation of asset prices. Moreover, the local authorities may take robust steps to continuously reforms in the Energy Mix policy to enhance local as well as foreign investment. Novelty/Originality of this study: The prime novelty of the study is to analyze the market model based on Market Value Financial Ratios to forecast the Market Level Return and Emerging Market Index Returns using three standard symmetric measures; root mean square error (RMSE), the mean absolute error (MAE), the mean absolute percentage error (MAPE) and the Theil inequality coefficient (TIC) respectively.