Abstract
This study examines the asymmetric cointegration and efficiency between Pakistan and BRICS equity markets using monthly data from October 1997 to September 2018. The results reveal that the Brazilian stock market is the most efficient during the global financial crisis. Threshold and momentum threshold autoregressive models (TAR and M.TAR) confirm the presence of a long-run relationship between BRICS and Pakistan stock markets, where the speed of negative shocks is higher and significant for Pakistan Russian, Pakistan South Africa stock market pair. This infers quick adjustment of stock prices to negative shocks (bad news) as compared to positive shocks (good news). The speed of adjustment of positive shocks for Pakistan China is higher. The results of asymmetric error correction model (AECM) show results of unidirectional causality between Pakistan China and Pakistan Brazil stock market pairs, while bidirectional causality runs from Pakistan Russia, Pakistan India, and Pakistan South Africa stock market pairs. Thus the Pakistan stock market has short-run and long-run relationships with most other stock markets. Multi-fractal detrended fluctuation analysis supports long run efficiency of Brazilian markets during the global financial crisis. It suggests that investors pay keen attention to the Pakistan stock market when investing in BRICS stock market.
Highlights
A rapid growth has been noted in BRICS and Pakistan economies over the last few decades
Results reported in table 6 and 7 are consistent with TAR, MTAR models based on a low value of AIC and BIC statistics which is appropriate. It manifests that Russia Pakistan, Pakistan China, and Pakistan South Africa stock market pairs are cointegrated
This study examines asymmetric cointegration and ranking of efficiency between Pakistan and BRICS equity markets
Summary
A rapid growth has been noted in BRICS and Pakistan economies over the last few decades. Goldman Sachs interprets BRIC’s total nominal expected GDP to be 128 trillion dollars in 2050 as compared to world G7 countries, 66 trillion at that time This present and future (expected) growth have a significant inference for their stock markets capitalization and for international investors. The future traded volume was reported as 3.7 billion and trading as 61.4 million shares In this period foreign investors off-loaded USD123.9 million (from July 2017 to March 2018). The diversification is completely effective for the investors when integration amid Pakistan and BRICS equity markets is least and financially sound (Zahir and Rahim 2015). Pakistan’s investors are encouraged to invest in an international diversified portfolio in developed equity markets, as there exists a low cointegration between Pakistan and developed stock markets (Tiwari et al 2013). It helps investors to diversify portfolios and regulators to minimize the cost of capital for the efficient allocation of resources
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