Current study finds out the effect of stock mispricing, through catering effect, on corporate investment decisions by taking the sample of firms listed on Pakistan Stock Exchange during the period of 2007-2014. This study uses the methodology of Rhodes-Kropf et al (2005) to measure the stock mispricing who used market to book decomposition methodology to find out different components of mispricing and relate it to corporate investment activity that is measured by capital expenditures. Stockholder investment horizon is measured by share turnover ratio. Panel regression methodology is used to determine the relationship between stock mispricing and corporate investment decisions. Results of the study show that Firms with short horizon investors have significantly higher mispricing sensitivity than the firms with long horizon shareholder. Both sides of mispricing affect the investment but the impact of overvaluation is more than undervaluation because the firms issue shareholder equity more than stock repurchase.

Purpose: This study attempts to empirically investigate the pair trading performance of financial and non-financial firms in Pakistan. Methodology: Daily data from 2008 to 2017 was collected for nine years. Cointegration and the distance approach were the two major analytical techniques used to evaluate the profitability of pair trading. The financial and non-financial sectors of the Pakistan Stock Exchange were used to build the pairs. Findings: Results showed that the top 5 pairs of portfolios exhibited the highest average excess returns of 0.0698, and Jensen's alpha is 0.0947 for the top 5 pairs. All pairs of firms showed significant and positive risk-adjusted performance. In the non-financial sector, the Top 10 pairs of portfolios had the highest average excess returns of 0.0789, and Jensen's alpha under the co-integration method for non-financial firms for all pairs 5, 10, 15, and 20 of the portfolios is also substantial and positive for risk-adjusted performance, with 0.0046, 0.0618, 0.0577, and 0.0493, respectively. Finally, pair trading under both techniques showed profitability. However, the co-integration technique exhibited better performance than the distance method. Conclusion: The study concluded that both pair trading techniques, particularly the co-integration technique, exhibited profitable pair trading performance that can assist investors and fund managers to earn positive returns on their investments regardless of market direction.