A Study on Long Term Relationship among Pakistani Stock Market With Asian Stock Markets

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.