DOES PREMIUM EXIST IN THE STOCK MARKET FOR LABOR INCOME GROWTH RATE? A SIX-FACTOR-ASSET-PRICING MODEL: EVIDENCE FROM PAKISTAN NAVEED KHAN Department of Management Sciences Islamia College University Peshawar, Pakistan Mandoori42@gmail.com HASSAN ZADA * Department of Management Sciences SZABIST Islamabad, Pakistan Hassanzaada@gmail.com IMRAN YOUSAF Department of Business Studies Namal University, Mianwali, Pakistan Imranyousaf.fin@gmail.com Published 22 June 2022 The objective of this study is to explore Roy and Shijin [(2018). A six factor assets pricing model. Borsa Istanbul Review, 18(3), 205–217] six-factor-model of asset pricing by extending Fama and French five-factor model to include human capital as a sixth factor in the context of Pakistan — an emerging country in Asia, and to test the validity of the six- factor asset pricing model in explaining time-series variations in portfolio returns of Pakistan equity market. For this purpose, we use Fama and Macbeth’ s two-pass time series regression technique to test the validity and applicability of the six-factor model. The findings indicate that the six factors model is an appropriate asset pricing model for explaining time-series variations in Pakistan. Furthermore, the human capital (labor income growth rate) is significant for most of the portfolios constructed in this study, which implies that the human capital significantly explains time-series variations in portfolio returns. The empirical results encourage all types of investors and academics to incorporate human capital into asset pricing models. It helps in more accurately estimating the required rate of return, which can improve asset pricing models. Keywords: Human capital; market premium; profitability premium; value premium; investment premium; size premium; six-factor model of asset pricing. JEL Classifications: G11, J31, C58 * Corresponding author. Annals of Financial Economics Vol. 17, No. 3 (September 2022) 2250017 (24 pages) © World Scientific Publishing Company DOI: 10.1142/S2010495222500178 2250017-1