Co-Movement of Pakistan Stock Market with the Stock Markets of Major Developed Countries Which Have Portfolio Investment in Pakistan

Abstract

The focal objective of this study is to analyze and explore the Co-movement of Pakistan stock market (KSE-100) with the stock market of developed countries (US, UK, Canada, Australia, Germany, Japan, France and Neither land) which have portfolio investment in Pakistan by applying co-integration approach using Johansen and Juselius multivariate and bi-variate co-integration. Secondary data of stock indices of these equity markets covering the period from 1 st July 2007 to June 2014 has been used. Analysis of study reveals that Pakistan stock market (KSE-100) is not co moved with any stock market of selected major developed countries. Non-existence of co-movement of KSE offers the investors and fund managers to get the diversification benefits by portfolio investment in KSE. This study will help the investors in searching such markets which have greater diversification benefits because diversification minimizes the risk element. Investors and policy makers can make efficient portfolio investment decisions by studying these analyses. This Study provides awareness and guideline to decision makers including local and foreign investors, agencies, financial analysts and banks about diversification opportunities in equity market of Pakistan.

The Effect of Stock Markets of Major Developed Countries on Pakistan Stock Market

“…Related Studies accompanied to observe the link amongst macroeconomic variables and stock market indices and to know how emerging equity market would affect the economic growth of a country and they also studied that whether the international stock markets are interrelated with each other or not; for these studies research include inflation, interest rate, industrial production, exchange rate, and different emerging markets like India, Malaysia, Pakistan, Korea, Turkey, Brazil, and Bangladesh has independent variables and dependent variables include the GDP, and stock market of Singapore; further variables include the US, UK, Germany, Japan, and France stock markets; co integration, two-step error correlation and time series analysis models were used by researchers. it is found by expert that the US market has significant and positive impact on the markets of United Kingdom (UK), French, and Germany and these markets provides great response to the innovation in US stock market but the Japanese stock market have no relation to the stock market of France, Germany, and the UK; researchers further conclude that the change in inflation rate (CPI), interest rate, money supply, exchange rate and industrial production form significant relationship with the Singapore's stock market (Maysami, Howe, & Hamzah, 2004;Arshanapalli & Doukas, 1993;Bekaert, Harvey, & Lundblad, 2001;Alvi &Chughtai, 2014 andKhan, 2011). Boubakera & Jouinic (2014), Kim (2010), and C.Chan, E.Gup, & Pan (1997) have studied the relationship among emerging and developed markets in different countries, relationship and integration between international stock markets respectively; scholars conduct research to measure the connection of stock market of US with the stock markets of Asian countries to see how one market have an impact on other equity markets; variables of the study include the Australia, Belgium, Germany, Greece, Iceland, Ireland, Denmark, Spain, UK, Switzerland, USA, France, Italy, Norway, Hong Kong, Korea, Taiwan, Canada, Finland, Japan, India, Netherland, Pakistan, and Sweden; test applied for the testing the results of the hypothesis by the researchers are co integration, Granger causality and vector auto regression model (VECM) these tests are used to find the relationship between international stock markets; results of these studies state that the bidirectional relationship or impact between emerging and western European markets is higher as compared to the relationship between emerging markets and US markets; the impact of developed countries' stock exchanges on emerging markets is very vital than that of emerging markets on developed markets; after the crisis of Asian financial the stock markets of the world become more interrelated specially relationship between US market and Asian emerging markets are more dominant than the casual linkage (Lamba, 2005;Ali, Butt, & Rehman, 2011;Alvi & Chughtai, 2014;Bhunia A., 2012 andNarayan, Smyth, &N...…”

Modelling the Conditional Co-Movements of Pakistan and International Stock Markets

“…Motivation: So far as Pakistan Stock Market is concerned, very few studies have been carried out regarding its comovement with other stock markets and inadequate literature is available that analyzes the linkages between markets at global and local levels with Pakistan as a base market by using rigorous econometric modelling approach such as the Multivariate-GARCH (MGARCH) (Alvi and Chughtai, 2015;Ghufran et al, 2016;Iqbal, 2014). Apart from a few studies, the literature provides no detailed testing of specific cross-mean and volatility spillover between Pakistan and international stock markets.…”

Through the Lens of Recession 2.0: Diversification Dynamics Between the Leading Asian Stock Markets

“…Stock market inter-linkages, though flooded with benefits, have the risk of contagion effects and ripple effects in the economic environment of other countries (Ehrmann et al, 2005;Forbes & Rigobon, 2002;Gallegati, 2010;Kaminsky & Reinhart, 2002;N'Diaye et al, 2010;Wu et al, 2015). Studies also found interdependence of Asian stock markets with other global markets (Awokuse et al, 2009;Bailey & Stulz, 1990;Caporale et al, 2019;Chung & Liu, 1994;Click & Plummer, 2005;Darrat & Zhong, 2002;Ghosh et al, 1999;Tahir et al, 2013;Tiwari et al, 2013;Yang, Khan & Pointer, 2003) as well as regional markets in European, African, Middle East and Gulf countries (Alvi et al, 2015;Gilmore & McManus, 2002;Naceur et al, 2007;Voronkova, 2004). However, there are fewer studies done exploring the co-movement of Asian stock markets, especially during Recession 2.0.…”