Dynamic Linkage among Pakistan, Emerging and Developed Equity Market

Abstract

The study evaluates the relationship of Pakistan Stock Exchange 1 (PSX) with progressing and well-established equity markets from 1997 to 2014. The Johansen’s multivariate cointegration tests i.e. maximum eigenvalue & trace statistics proposes three co-integrating vectors at 5% critical values with the progressing and well-established equity markets. Furthermore, vector correction model implies that PSX is positive and statistically robust in relation to India at lag 2, while negative and statistically significant in relation to China at lag 1 and USA at lag 2. Though, the bivariate co-integration trace and maximal eigenvalues recommends that the PSX individually have no relationship with other markets. This study further recommends that PSX is extremely unpredictable stock market in between from 44% to -24%. It might be desired by risky investors.