Caspian Journal of Applied Sciences Research 4(10), pp. 10-19, 2015 Journal Homepage: www.cjasr.com ISSN: 2251-9114 Determinants of equity return: Syariah and Non-Syariah complaint firms the case of Pakistan Suleman Sarwar 1,* , Wasim Hussan 2 1 School of Economics, Shandong University, Jinan. PR China. 2 Superior University, Lahore. Pakistan. The study investigates the significant determinants of stock returns of all non-financial listed companies in Karachi Stock Exchange (KSE), Pakistan from 1998-2011 by using panel data techniques. In addition, this study further categorized into Syariah and Non-Syariah compliant firms to examine the significant differences of stock determinants. All listed stocks in Karachi Meezan Index (KMI) are entitled as Syariah complaint firms, rest of the firms listed in KSE all index are identified as non- Syariah complaint firms. As Syariah complaint firms don’t use any unethical means to cater its stock prices, so, it was hypothesized that Syariah stocks follow the fundamental of the companies. Size, book to market, leverage, dividend yield, earning to price, cash flow to price and discretionary accrual represents the fundamentals while market premium, stock price volatility and trading volume indicates the stock market variables. Fixed effect model and Random effect model is applied for statistical estimations. Hausman test is further used to find the most significant model. Modified wald test find the heteroskedasticity, final results were robust to counter the heteroskedasticity issue. The results of all non-financial listed firms confirmed the significant positive market premium, size, stock price volatility and trading volume whereas significant negative book to market ratio. Market premium, leverage and stock price volatility are the only significant determinants of Syariah complaint firms. Insignificance of BM and TV confirms that Syariah stocks follow the fundamentals instead of noise trading. In a nutshell, Syariah complaint firms respond to fundamentals although non-Syariah complaint firms follow noise trading in Pakistani context. © 2015 Caspian Journal of Applied Sciences Research. All rights reserved. Keywords: Electro rheological dispersion; poorly conducting fluid; generalized dispersion; porous media. * Corresponding address: School of Economics, Shandong University, Jinan. PR China. E-mail address: ch.sulemansarwar@gmail.com (Suleman Sarwar) © 2015 Caspian Journal of Applied Sciences Research; www.cjasr.com. All rights reserved. 1. Introduction Islamic stock index provides an ethical and religious platform to the Muslim investors for participating in the growth of company's operations as well as the economy of the country. The increasing trend of investment in Syariah stocks attracted the researchers and mutual fund managers to explore the significant determinants of Syariah stock returns. As firms are scrutinized on the basic of Syariah laws, it is hypothesized that )slamic stocks follow the company’s fundamentals rather than investor's sentiments and other market variables. Due to less availability of literature, determinants of Islamic stock returns are still a puzzle in finance. Previous researchers provided the number of asset pricing theories, like, Capital Asset Pricing Model (CAPM), Fama and French three factor model (TFM), four-factor model (FFM)