The Conditional Relationship between Risk and Return: Evidence from an Emerging Market

Abstract

This paper examine whether the conditional relationship between beta and return proposed by Pettengill et al. (1995) exist in an emerging stock market namely Pakistan. We applied this approach to Karachi Stock Exchange (KSE-100) returns data over the period of 1992-2008, and found that there is a flat unconditional relationship between beta and return which is consistent with previous research. And when we split our sample into up market and down market return months, our result supported the conditional relationship.