Abstract
The study at hand examined financial cointegration of emerging economies and explored the diversification opportunities which are available for investors of developed countries. For the long run and causal relationship, Johanson cointegration and Granger Causality test are employed respectively. Analysis revealed evidence of cointegration between the markets of UK and Egypt. Granger Causality test indicated causality and most emerging stock markets were detected to be the followers of established capital markets. Findings implied that investors should consider the cointegration relationship before making investment decisions as it can minimize potential paybacks of prospective international portfolio diversification. Further, policy makers are recommended to consider keep an eye on the stock markets which are strongly cointegrated also having high bilateral trade volume while framing fiscal and monetary policies.
Highlights
The emerging countries always headed to attain economic development and to improve the economic growth
The results indicated that the equity market of Pakistan is influenced by the stock markets of India, Thailand, China, Indonesia, Malaysia, Brazil, Turkey and Japan and put its effect on capital markets of Hong Kong, Malaysia, Indonesia and Thailand
Results indicated all the variables/series except Philippines to be non-stationary at level but stationary at first difference
Summary
The emerging countries always headed to attain economic development and to improve the economic growth. Globalization, improvement in communication networks (Khan, 2011), information technology boom (Menon, Subha, & Sagaran, 2009), deregulation of markets, and relaxation of trade terms (Hussain, Hussain, Bhatti, & Hassan, 2012) have encouraged the investors to chase international potential investment opportunities. These factors have improved capital mobility across geographical boundaries and resulted in more economically and financially unified and caused the stock
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