Investigating if the market is efficient is an old issue as market efficiency is imperative for channeling investments to best-valued projects and its importance endures. There is contradictory evidence in the literature provided by empirical researches. The primary purpose of this research has been to find out whether share prices are a random walk process by applying multiple unit root tests, Runs Test and newly developed State Space Model. The empirical findings of the study provide sufficient evidence that the stock prices of KSE 100 Index, S & P BSE 500 Index, and CSE All Share Index is not a random walk process and are thus weak form inefficient hypothesis. In this study, the concept of the random walk is examined considering only the stock markets while bypassing the other asset markets. This research supply exciting facts about independent samples from Pakistan, India, and Bangladesh and complement the existing literature on emerging markets.DOI: 10.15408/etk.v17i2.7102

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Capital generation to fund everyday operations and long-term expansions is a constant concerning element in the corporate world. This study aims to investigate the optimal level of capital structure that firms can adopt to improve their financial performance given the industry dynamics and economic circumstances of the country. Using Hausman’s specification test, annual data for the period 2005 – 2014 of Karachi Stock Exchange (KSE) 100 index listed securities has been collected to analyze the impact of financial leverage on the firms’ performance. Return on assets, return on Equity, and TOBIN’s Q are the proxies of financial performance analyzed against financial leverage for the KSE 100 index listed firms. The finding of the paper indicates that capital structure, leverage, interest cover and sales growth as most significant variables impacting firms’ profitability.   DOI: 10.15408/etk.v17i1.6102

This study aims to analyze and compare the financial stability of Pakistani banks covering a timeframe of 5 years from 2012 to 2016. This study employs the financial soundness indicators of the International Monetary Funds and State Bank of Pakistan and the z-score index. The comparative analysis through average scores is performed using 3 indicators of financial stability namely Z-Score, Capital Adequacy Ratio (CAR) and Equity to Total Assets Ratio. The findings of the research reveal that (i) conventional banks are more financially stable than Islamic banks; (ii) large conventional banks are more financially stable than large Islamic banks; (iii) small Islamic banks are less stable than small conventional bank. The implication of this paper is that conventional banks have the potential of absorbing financial stability shock as compare to Islamic banks on the basis of stated financial soundness indicators and Z-Score specifically.

The study attempts to examine herding behaviour in Pakistan stock exchange and determine how herding behaviour responds to asymmetric market conditions. This study has employed CH model, CSSD & CSAD models, and State‐space model. We have used time series data for the period from 2000 to 2016, which include daily returns of KSE all share index and 890 firms listed on Pakistan stock exchange. The outcomes of the study not only reported significant evidence of herding behaviour in Pakistan stock market over the entire sample period but also found it to be more pronounced under extreme market conditions, market volatility and financial crisis. Further, it was found that herding behaviour increases before the crisis, whereas decreases at the time of crisis. Fund managers and investors need to take herding behaviour in to account to evaluate asset prices and require a large number of stocks for achieving a correlation of inferior degree in portfolios and same degree in diversification. In addition, funds herding can be used as a signal of managerial quality. Moreover, as herding implies that fund managers and investors react to regulatory changes in a similar way, which may prevent asset prices from reaching their fundamental values and further causes financial markets to become fragile and destabilize, thus policymakers should take measures to control herding.