The effect of firm specific factors on stock returns: A case of Pakistani listed firms

The aim of this paper is to find the impact of risk, return on investment, growth and size on stock returns. The data have been collected from financial statements of 46 companies listed on KSE, covering 18 different sectors, for a period of 5 years i.e. 2008-2012. To test the hypotheses empirically, descriptive statistics and multiple linear regression techniques are used. Results show 39.6% correlation between predictor and predicted variables whereas 15.7% variation in predicted variable is explained by four predictor variables namely risk, ROI, growth and size. Three of the predictor variables, namely risk, ROI and growth, are statistically significant while size has a statistically insignificant impact on stock returns. The findings of this study are consistent with previous studies on the same topic, conducted in other markets. This study will be helpful for individual as well as institutional investors to estimate the expected returns of stocks based on the above mentioned variables before investing, thus enabling them to make better investment decisions.