Abstract:
This study analyzes the relationship of Systematic Risk and Fundamental Accounting variables
i.e. Leverage, Liquidity, Operational Efficiency, Firm Size, Profitability, Growth Rate and
Dividend Payout in regard to Pakistan Stock Market, to develop and multifactor model between
systematic risk and overall financial risk indicators. Thus making it easy for investor to make
informed investment decision and predict Market Beta from accounting information available.
By so doing it becomes possible to identify the potential cross-sectional differences which drive
the empirical relationship between accounting and market based measures of risk. The model
proposed highlights a clear relationship between accounting measures and market measures of
risk which can be exploited in situations where accounting data alone is available to predict the
Beta.
The body of work that relates financial accounting risk measures to market measures of
systematic risk was undertaken from 2003-2010 from a sample of 100 non -financial companies
of Karachi Index.. More recent proposals on changes in accounting variables disclosure of risk
mean that a rigorous theoretical model of the relationship between accounting measures and
market measures of risk exists... In this paper such a model is empirically tested.
