A Study on Long Term Relationship among Pakistani Stock Market With Asian Stock Markets
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Published:
2024-04-11
Keywords:
Co-integration, Equity Stock Markets, Market Trends, Stock Prices, Portfolio Diversification
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Abstract
The main purpose and scope of this study is to explore causal and dynamic linkages of Karachi Stock Exchange, KSE-100 index (Pakistan) with emerging stock markets of Nikkei-225 (Japan), Shanghai Stock Exchange, SSE (China), Kuala Lumpur Stock Exchange, KLSE (Malaysia) and Taiwan Stock Exchange Corporation, TSEC Taiwan. The most recent data has taken from January 2001 to December 2013. Monthly stock index observations are taken. Descriptive statistics, Correlation Analysis, Unit Root Test, VAR, Co-integration Test, VECM Test are used to identify the presence of short-term as well as long-term associations. Empirical results indicate that KSE-100 is a volatile market and have suitable level of returns. Moreover, KSE-100 index has not long-term relationship with Japan, Malaysia, Taiwan and China but Taiwan, China and Japan has short run relationships to KSE. Furthermore, study explores that the major change in KSE-100 is owed to its own innovations whereas other selected Asian equity markets have no significant impact on the KSE The findings conclude that there is a further need of future study to explore the factors of economic integration amongst these equity markets. The study overall exhibits awareness not only for economic and financial decision makers but also for international as well as regional investors about the benefit opportunities of portfolio diversification in these equity markets, funds management and trends of the stock market.
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How to Cite
A Study on Long Term Relationship among Pakistani Stock Market With Asian Stock Markets. (2024). Journal of Management Info, 2(1), 1-25. https://doi.org/10.31580/jmi.v5i1.32
References
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Abbas, Q., Khan, S., & Shah, S. Z. A. (2013). Volatility transmission in regional Asian stock markets.Emerging Markets Review, 16, 66–77.
Aggarwal, R. & Kyaw, N.A (2005), “Equity Market Integration in the NAFTA Region: Evidence from Unit Root and Co integration Testsâ€, International Review of Financial Analysis, vol. 14, pp. 393-406.
Agyei-Ampomah, S. (2011).Stock market integration in Africa. Managerial Finance, 37(3), 242-256.
Arouri, E.H.M., & Nguyen, D.K. (2010). Time-varying characteristics of cross-market linkages with empirical application to Gulf stock markets. Managerial Finance, 36(1), 57-70.
Arshad.H, Shah. Z & S. Abdullah (2007), “Testing Random Walks and Market Efficiency in an emerging equity marketâ€, Business Review Cambridge, volume 9, pp271-281.
Bekaert, Geert, and Campbell R. Harvey. "Emerging equity market volatility." Journal of Financial economics 43.1 (1997): 29-77.
Cheng, A.-R., Jahan-Parvar, M. R. & Rothman, P. 2010. An Empirical Investigation of Stock Market Behavior in the Middle East and North Africa. Journal of Empirical Finance 17(3): 413-427.
Chung JP & Liu JP (1994).Common Stochastic trends in Pacific Rim Stock Markets. Q. Rev. Econ. Financ., 34(3): 241-259.
Cha, B. and S. Oh. (2000), “The relationship between developed equity markets and the Pacific Basin’s emerging equity marketsâ€, International Review of Economics and Finance, Vol. 9, pp 299-322.
Dickey DA, Fuller WA (1981). Likelihood Ratio Statistics for Autoregressive Time Series with Unit Root. Econometrica, 49:1057-1072.
Engle, R.F. & Granger, C. (1987), “Co-Integration, error correction: Representation, estimation and testingâ€, Econometrica, Vol. 55, pp 1251-1276.
Eun, C. & Shim, S. (1989), “International transmission of stock market movementsâ€, Journal of Financial and Quantitative Analysis, Vol. 24, pp. 241-256.
Ewing, B. T. 2002. The Transmission of Shocks among S&P Indices. Applied Financial Economics 12(4): 285-290.
Fan, K., Lu, Z., & Wang, S. (2009). Dynamic Linkages Between the China and International Stock Markets. Asia-Pacific Financial Markets, 16(3), 211–230. doi:10.1007/s10690-009-9093-5
Gallo, G. M., & Otranto, E. (2007). Volatility transmission across markets: a Multichain Markov Switching model. Applied Financial Economics, 17(8), 659-670.
Granger, C. Huang, B. & Yang, C. (2000), “A Bivariate Causality between Stock prices and exchange rate: Evidence from Recent Asian fluâ€, The Quarterly Review of Economics and Finance, pp 337-354.
Hamilton, J. D., & Lin, G. (2009). Stock market volatility and the business cycle. Journal of Applied Econometrics, 11(5), 573-593.
Hasan, A., Saleem, H. M., & Abdullah, M. S. (2008), “Long-Run Relationships between an Emerging Equity Market and Equity Markets of the Developed World an Empirical Analysis of Karachi Stock Exchangeâ€, International Research Journal of Finance and Economics, Vol. 16:52-62
Hasan A, Durrani KT (2008). Causal and dynamic relationship among equity markets of South Asia. Jinnah Bus. Rev., 1(1): 39-49.
Hee Ng, T. (2002). Stock Market Linkages in South–East Asia. Asian Economic Journal, 16(4), 353-377.
Hoque, H. (2007),“Co-movement of Bangladesh stock market with other markets: Co- integration and error correction approachâ€, Journal of Managerial Finance, Vol. 33, pp. 810-820.
Husain, F. & Saidi, R. (2000), “The integration of Pakistani Equity Market with International Equity Markets: An Investigationâ€, Journal of International Development, pp. 207-218.
Hussain, R. Y., Hussain, H., Bhatti, G. A., & Hassan, A. (2012). Long run Relationship among East Asian equity markets and KSE. Management Science Letters, 2(4), 1167–1174. doi:10.5267/j.msl.2012.03.004
Islam, M. I., Rahimian, E., & Robbani, M.G. (2005). Interdependence of the equity markets of India, Malaysia and Singapore: Tests based on daily equity series. Investment Management and Financial Innovations, 4, 95-104.
Jebran, K. (2014) Dynamic Linkages between Asian Countries Stock Markets: Evidence from Karachi Stock Exchange. Research Journal of Management Sciences ,Vol. 3(5), 6-13,
Johansen S (1991). Estimation and hypothesis testing of co-integrating vectors in Gaussian vector autoregressive models. Econometrica, 59(11): 1551-1580.
Kasa, K. (1992), “Common stochastic trends in international stock marketsâ€, Journal of Monetary Economics, Vol. 29, pp.95-124.
Khan, A. (2014). How Does Stock Prices Respond to Various Macroeconomic Factors? A Case Study of Pakistan. Journal Of Management Info, 4(1), 75-95
Khan, S. N., & Aslam, M. S. (2014). Co-integration of Karachi Stock Exchange with major South Asian Stock Exchanges. International Journal of Accounting and Financial Reporting, 4(1).
Khan, S. U., & Rizwan, F. (2008). Trading volume and stock returns Evidence from Pakistan’s stock market. International Review of Business Research Papers, 4(2), 151–162.
Lamba. (2005),â€Analysis of the Short- and Long-Run Relationships between South Asian and Developed Equity Marketsâ€, International Journal of Business, Vol.10
Majid, M. S. A., Meera, A. K. M., Omar, M. A., & Aziz, H. A. (2009). Dynamic linkages among ASEAN-5 emerging stock markets. International Journal of Emerging Markets, 4(2), 160–184.doi:10.1108/17468800910945783
Malik, S., Hussain, S., & Ahmed, S. (2009). Impact of political event on trading volume and stock returns: The case of KSE. International Review of Business Research Paper, 5(4), 354–364.
Marashdeh, H. (2005). Stock market integration in the MENA region: An application of the ARDL bounds testing approach. Working Paper, November 2005.
Markowitz, H. (1952). Harry M. Markowitz. Portfolio selection, Journal of Finance, 7(1), 77-91.
Mustafa, M. J. (2012). Short-Run and Long-Run Dynamics Linkages among the Saudi Arabia Stock Market Indices.
Narayan P, Smyth R, Nandha M, (2004). Interdependence and dynamic linkages between the emerging stock markets of South Asia.Account.Financ., 44: 419-439.
Phillips, P. &Perron, P.(1988),â€Testing for a unit root in time series regressionâ€, Biometrica, Vol.75, pp.335-346.
Rahman, M. L., &Uddin, J. (2009). Dynamic relationship between stock prices and exchange rates: evidence from three South Asian countries. International Business Research, 2(2), P167.
Searat. A , Zaheer. B, ( 2011). “Co-movement between emerging and developed stock market,†journal of applied sciences ,12(4): 395-403.
Shahbaz, M., Ahmed, N., & Ali, L. (2008). Stock market development and economic growth: ARDL causality in Pakistan. International Research Journal of Finance and Economics, 14(1), 182–195.
Smyth, N. and Nandha, M. (2004), “Interdependence and dynamic linkages between the emerging stock markets of South Asiaâ€, Accounting and Finance, Vol. 44,pp,419-439.
Sohail, N., &Hussain, Z. (2009). Long-Run and Short-Run Relationship between Macroeconomic Variables and Stock Prices in Pakistan: The Case of Lahore Stock Exchange. Pakistan Economic and Social Review, 183–198.
Subramanian, U. (2008). Cointegration of stock markets in East Asia.European Journal of Economics, Finance and Administrative Sciences, 14, 84–92.
Suchismita, B. (2005),†Indian, US and Asian Stock Markets Recent Trends in Interlinkages†Money and Finance
Valadkhani, A. & Chancharat, S. (2007), “Dynamic linkages between Thaiand international stock marketsâ€, Journal of Economic Studies, Vol. 35(5), pp. 425-441.
World Bank (1997).Private Capital Flows to Developing Countries. Oxford University Press. New York.
Yifan, S., and Rasli, A. (2013). The Relationship between Rural Endowment Insurance and Rural Human Capital Investment: A Exploratory Study of hebei Province, PR China. Jurnal Teknologi, 64(2)
Abbas, Q., Khan, S., & Shah, S. Z. A. (2013). Volatility transmission in regional Asian stock markets.Emerging Markets Review, 16, 66–77.
Aggarwal, R. & Kyaw, N.A (2005), “Equity Market Integration in the NAFTA Region: Evidence from Unit Root and Co integration Testsâ€, International Review of Financial Analysis, vol. 14, pp. 393-406.
Agyei-Ampomah, S. (2011).Stock market integration in Africa. Managerial Finance, 37(3), 242-256.
Arouri, E.H.M., & Nguyen, D.K. (2010). Time-varying characteristics of cross-market linkages with empirical application to Gulf stock markets. Managerial Finance, 36(1), 57-70.
Arshad.H, Shah. Z & S. Abdullah (2007), “Testing Random Walks and Market Efficiency in an emerging equity marketâ€, Business Review Cambridge, volume 9, pp271-281.
Bekaert, Geert, and Campbell R. Harvey. "Emerging equity market volatility." Journal of Financial economics 43.1 (1997): 29-77.
Cheng, A.-R., Jahan-Parvar, M. R. & Rothman, P. 2010. An Empirical Investigation of Stock Market Behavior in the Middle East and North Africa. Journal of Empirical Finance 17(3): 413-427.
Chung JP & Liu JP (1994).Common Stochastic trends in Pacific Rim Stock Markets. Q. Rev. Econ. Financ., 34(3): 241-259.
Cha, B. and S. Oh. (2000), “The relationship between developed equity markets and the Pacific Basin’s emerging equity marketsâ€, International Review of Economics and Finance, Vol. 9, pp 299-322.
Dickey DA, Fuller WA (1981). Likelihood Ratio Statistics for Autoregressive Time Series with Unit Root. Econometrica, 49:1057-1072.
Engle, R.F. & Granger, C. (1987), “Co-Integration, error correction: Representation, estimation and testingâ€, Econometrica, Vol. 55, pp 1251-1276.
Eun, C. & Shim, S. (1989), “International transmission of stock market movementsâ€, Journal of Financial and Quantitative Analysis, Vol. 24, pp. 241-256.
Ewing, B. T. 2002. The Transmission of Shocks among S&P Indices. Applied Financial Economics 12(4): 285-290.
Fan, K., Lu, Z., & Wang, S. (2009). Dynamic Linkages Between the China and International Stock Markets. Asia-Pacific Financial Markets, 16(3), 211–230. doi:10.1007/s10690-009-9093-5
Gallo, G. M., & Otranto, E. (2007). Volatility transmission across markets: a Multichain Markov Switching model. Applied Financial Economics, 17(8), 659-670.
Granger, C. Huang, B. & Yang, C. (2000), “A Bivariate Causality between Stock prices and exchange rate: Evidence from Recent Asian fluâ€, The Quarterly Review of Economics and Finance, pp 337-354.
Hamilton, J. D., & Lin, G. (2009). Stock market volatility and the business cycle. Journal of Applied Econometrics, 11(5), 573-593.
Hasan, A., Saleem, H. M., & Abdullah, M. S. (2008), “Long-Run Relationships between an Emerging Equity Market and Equity Markets of the Developed World an Empirical Analysis of Karachi Stock Exchangeâ€, International Research Journal of Finance and Economics, Vol. 16:52-62
Hasan A, Durrani KT (2008). Causal and dynamic relationship among equity markets of South Asia. Jinnah Bus. Rev., 1(1): 39-49.
Hee Ng, T. (2002). Stock Market Linkages in South–East Asia. Asian Economic Journal, 16(4), 353-377.
Hoque, H. (2007),“Co-movement of Bangladesh stock market with other markets: Co- integration and error correction approachâ€, Journal of Managerial Finance, Vol. 33, pp. 810-820.
Husain, F. & Saidi, R. (2000), “The integration of Pakistani Equity Market with International Equity Markets: An Investigationâ€, Journal of International Development, pp. 207-218.
Hussain, R. Y., Hussain, H., Bhatti, G. A., & Hassan, A. (2012). Long run Relationship among East Asian equity markets and KSE. Management Science Letters, 2(4), 1167–1174. doi:10.5267/j.msl.2012.03.004
Islam, M. I., Rahimian, E., & Robbani, M.G. (2005). Interdependence of the equity markets of India, Malaysia and Singapore: Tests based on daily equity series. Investment Management and Financial Innovations, 4, 95-104.
Jebran, K. (2014) Dynamic Linkages between Asian Countries Stock Markets: Evidence from Karachi Stock Exchange. Research Journal of Management Sciences ,Vol. 3(5), 6-13,
Johansen S (1991). Estimation and hypothesis testing of co-integrating vectors in Gaussian vector autoregressive models. Econometrica, 59(11): 1551-1580.
Kasa, K. (1992), “Common stochastic trends in international stock marketsâ€, Journal of Monetary Economics, Vol. 29, pp.95-124.
Khan, A. (2014). How Does Stock Prices Respond to Various Macroeconomic Factors? A Case Study of Pakistan. Journal Of Management Info, 4(1), 75-95
Khan, S. N., & Aslam, M. S. (2014). Co-integration of Karachi Stock Exchange with major South Asian Stock Exchanges. International Journal of Accounting and Financial Reporting, 4(1).
Khan, S. U., & Rizwan, F. (2008). Trading volume and stock returns Evidence from Pakistan’s stock market. International Review of Business Research Papers, 4(2), 151–162.
Lamba. (2005),â€Analysis of the Short- and Long-Run Relationships between South Asian and Developed Equity Marketsâ€, International Journal of Business, Vol.10
Majid, M. S. A., Meera, A. K. M., Omar, M. A., & Aziz, H. A. (2009). Dynamic linkages among ASEAN-5 emerging stock markets. International Journal of Emerging Markets, 4(2), 160–184.doi:10.1108/17468800910945783
Malik, S., Hussain, S., & Ahmed, S. (2009). Impact of political event on trading volume and stock returns: The case of KSE. International Review of Business Research Paper, 5(4), 354–364.
Marashdeh, H. (2005). Stock market integration in the MENA region: An application of the ARDL bounds testing approach. Working Paper, November 2005.
Markowitz, H. (1952). Harry M. Markowitz. Portfolio selection, Journal of Finance, 7(1), 77-91.
Mustafa, M. J. (2012). Short-Run and Long-Run Dynamics Linkages among the Saudi Arabia Stock Market Indices.
Narayan P, Smyth R, Nandha M, (2004). Interdependence and dynamic linkages between the emerging stock markets of South Asia.Account.Financ., 44: 419-439.
Phillips, P. &Perron, P.(1988),â€Testing for a unit root in time series regressionâ€, Biometrica, Vol.75, pp.335-346.
Rahman, M. L., &Uddin, J. (2009). Dynamic relationship between stock prices and exchange rates: evidence from three South Asian countries. International Business Research, 2(2), P167.
Searat. A , Zaheer. B, ( 2011). “Co-movement between emerging and developed stock market,†journal of applied sciences ,12(4): 395-403.
Shahbaz, M., Ahmed, N., & Ali, L. (2008). Stock market development and economic growth: ARDL causality in Pakistan. International Research Journal of Finance and Economics, 14(1), 182–195.
Smyth, N. and Nandha, M. (2004), “Interdependence and dynamic linkages between the emerging stock markets of South Asiaâ€, Accounting and Finance, Vol. 44,pp,419-439.
Sohail, N., &Hussain, Z. (2009). Long-Run and Short-Run Relationship between Macroeconomic Variables and Stock Prices in Pakistan: The Case of Lahore Stock Exchange. Pakistan Economic and Social Review, 183–198.
Subramanian, U. (2008). Cointegration of stock markets in East Asia.European Journal of Economics, Finance and Administrative Sciences, 14, 84–92.
Suchismita, B. (2005),†Indian, US and Asian Stock Markets Recent Trends in Interlinkages†Money and Finance
Valadkhani, A. & Chancharat, S. (2007), “Dynamic linkages between Thaiand international stock marketsâ€, Journal of Economic Studies, Vol. 35(5), pp. 425-441.
World Bank (1997).Private Capital Flows to Developing Countries. Oxford University Press. New York.
Yifan, S., and Rasli, A. (2013). The Relationship between Rural Endowment Insurance and Rural Human Capital Investment: A Exploratory Study of hebei Province, PR China. Jurnal Teknologi, 64(2)