Is Integration of Stock Markets Advantageous for Emerging Economies?

Abstract

The focal purpose of this study is to analyze and explore the linkages of Pakistan Stock Exchange with the equity market of developing countries (Bangladesh, Singapore, Turkey, China and India) by applying co-integration approach to capture the short-run and long-run analysis. Monthly based secondary data containing stock indices of these equity markets covering the period from Jan 2015 to June 2019 has been used. Analysis of study shows that Pakistan Stock Exchange is not linked with the equity markets of Bangladesh and Singapore while it is correlated with the equity markets of China, Turkey and India. Results also show that PSX has short run relationship with developing countries like China, India and Turkey. No linkage with selected equity markets offers the investors and fund managers to get the better investment benefits in PSX. Existence of linkages of PSX- with the equity market reveals that the investors and fund managers of these countries do not have better investment opportunities in PSX. This study will help the investors in searching such equity markets which have greater investment benefits because linkages of equity market determines the better investment places. Investors and policy makers can make efficient investment decisions by studying these analyses. This study provides awareness and guideline to decision makers including local and foreign investors, agencies, financial analysts and banks about investment opportunities in equity market of Pakistan.