The Internationalisation of the Pakistani Stock Market: An Empirical Investigation

Abstract

A recent major development in international finance has been the growing interest of the portfolio managers in emerging stock markets. The interest in the emerging markets has been accelerated by global trends towards the opening up of economies and financial markets, the free flow of capital and the privatisation of financial institutions. The integration of emerging markets globally has been hindered so far as, besides other several factors, participating in emerging securities markets has posed serious problems for international investors. "These markets lack the depth, regulatory framework, and structural safeguards that characterise equity markets in the 'United States and in a few industrial countries," [Medewitz et al. (1991)]. A peculiar risk of investing in the emerging markets, besides the currency, political and investment risk, is the "risk arising out of the development stage of emerging markets," [Errunza and Losq (1987)]. Compounding the difficulties for the international investor is the lack of information pertinent for making investment decisions. A study of emerging markets, therefore, becomes important in shedding light on the economic and institutional characteristics of these markets.

The Random Walk Model in the Pakistani Equity Market: An Examination

“…However, as pointed out by the author, this is a surprising result in the context of a developing economy and needs further investigation by using weekly or daily data. Uppal (1993) examines the relationship between stock returns in the Pakistani equity market and international equity markets. Using monthly indices for Pakistan, USA, UK, Japan, India, Australia, and Korea, the author uses the GARCH(p,q) technique to investigate the spillover effects in mean stock return and volatility of these markets on Pakistani market.…”

“…The empirical studies of the behaviour of stock returns in the Pakistani equity market are few, for example, Khilji (1993Khilji ( , 1994; Uppal (1993); Ahmed (1995), etc. However, none of the studies specifically tests the RW hypothesis.…”

Pakistan, Growth, Dependency, and Crisis

“…There is evidence that domestic financial markets in Pakistan have become more integrated with both the world economy and with Pakistan's real domestic economy over the era of liberalization. Uppal (1993) finds that volatility on foreign stock markets, particularly in Asia and going right back to the 1960s, have affected the stock market in Pakistan. There is also evidence that financial liberalization from the 1990s onward, strengthened interlinkages between stock prices and macroeconomic variables in Pakistan (F. Husain & Mahmood, 2001).…”

The Response of Karachi Stock Exchange to Nuclear Detonation

“…The ARCH models are frequently used for analysing financial time series [see Engle, Lillen and Bellerslev (1987); Agairy (1989) and Chou (1988)] and their application to event studies has been done by Jong, Kemma and Klock (1992). These models have been quite successfully applied to stock market data in Pakistan as well [see, for example, Uppal (1993) and Ahmed and Rosser (1995)]. An ARCH model consists of two parts, an autoregressive moving average (ARMA) equation and an ARCH equation.…”