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Volume :13 Issue : 1 2006      Add To Cart                                                                    Download

Factor Structure of Returns in Developing Equity Markets: The Case of Saudi Arabia

Auther : Abraham Abraham
Sulaiman A. Al-Sakran

This paper uses the APT of Ross (1976) to estimate the number of relevant priced risk factors for the Saudi Arabian Stock Market. We find that there is one dominant, significantly priced factor that explains returns, and intuitively confirms the almost total dependence of the economy on crude oil and oil related activity. The APT framework as an explanatory model is, however, only weakly supported, as the implied zero beta return is too low compared to the risk free rate. The existence of one factor as documented here has important implications for institutional fund managers and for investors with hedging demands.

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