Pakistan Stock Market Research Articles

Capital Asset Pricing Model for the Stock Market in Pakistan

The Capital Asset Pricing Model (CAPM), within modern financial theory, offers a theoretical framework for pricing assets with uncertain returns. CAPM assesses systematic risk and proposes a linear relationship between risk and expected returns for any asset. It serves as a potent tool for pricing risky assets. In this present study, the trade-off between risk-return was investigated within the framework of CAPM and its validity was tested on the daily returns of companies listed in the chemical, textile and food sectors of the Pakistan stock market during the period July 2004- Feb 2014. The results of empirical testing by regression analysis supported the CAPM’s validity for these sectors in Pakistan and found CAPM β as a single factor which was priced by the market. The KSE-100 index was used as a market, and the year treasury-bills return rate was taken as a risk-free rate.

COVID-19 and Seasonality in Monthly Returns: a Firm Level Analysis of PSX

Abstract The current study scrutinizes the calendar anomalies in the context of the local market by analyzing the Pakistan Stock Exchange (PSX). For this purpose, closing prices of KSE-100, KSE-30 and KSE-All share Index from January, 2009 to June, 2021 have been used as well as a thorough individual firm level analysis is done, taking average log-returns of selected sample firms returns using OLS regression, general GARCH (1,1), asymmetric TGARCH and PGARCH models. The results indicate monthly seasonality, with significant April, July, and September effect in PSX indices returns. The findings of the study reveal that weak form inefficiency exists in Pakistan Stock Market, which implies the possibility of earning abnormal returns by investors using timing strategies. Due to global pandemic conditions, investor psychology investors turned circumspect. Consequently, the individual firms’ trading has also reduced.

The impact of macroeconomic variables on Pakistan stock market (PSX) (Case study of top-rated companies of (PSX)

The stock market plays a critical role in the economy by mobilizing resources and converting them into productive investments, establishing a significant relationship with macroeconomic variables. Various studies have shown that fluctuations in macroeconomic factors, such as aggregate consumption, inflation, interest rates, and exchange rates, reflect in stock market movements. This research focuses on the impact of macroeconomic variables on the Pakistan Stock Exchange (PSX), specifically analyzing top-rated companies. Previous studies in the U.S., Japan, and Bangladesh have demonstrated the influence of industrial production, bond rates, and inflation on stock markets, showing a direct link between economic indicators and market performance. In Pakistan, remittances play a crucial role in the economy, contributing significantly to economic growth and, consequently, influencing the stock market. The State Bank of Pakistan reported record remittance inflows in 2010-2011, highlighting their importance to the country’s financial health. This study aims to examine how key macroeconomic factors, including GDP, remittances, inflation, and interest rates, affect the PSX, using insights from both local and international research. Understanding these relationships will provide valuable information for investors and policymakers in predicting stock market trends. Key words:

The effects of the COVID-19 pandemic period on stock market return and volatility. Evidence from the Pakistan Stock Exchange.

The COVID-19 pandemic has emerged as a significant event of the current century, introducing substantial transformations in economic and social activities worldwide. The primary objective of this study is to investigate the relationship between daily COVID-19 cases and Pakistan stock market (PSX) return volatility. To assess the relationship between daily COVID-19 cases and the PSX return volatility, we collected secondary data from the World Health Organization (WHO) and the PSX website, specifically focusing on the PSX 100 index, spanning from March 15, 2020, to March 31, 2021. We used the GARCH family models for measuring the volatility and the COVID-19 impact on the stock market performance. Our E-GARCH findings show that there is long-term persistence in the return volatility of the stock market of Pakistan in the period of the COVID-19 timeline because ARCH alpha (ω1) and GARCH beta (ω2) are significant. Moreover, is asymmetrical effect is found in the stock market of Pakistan during the COVID-19 period due to Gamma (ѱ) being significant for PSX. Our DCC-GARCH results show that the COVID-19 active cases have a long-term spillover impact on the Pakistan stock market. Therefore, the need of strong planning and alternative platform should be needed in the distress period to promote the stock market and investor should advised to make diversified international portfolio by investing in high and low volatility stock market to save their income. This study advocated the implications for investors to invest in low volatility stock especially during the period of pandemics to protect their return on investment. Moreover, policy makers and the regulators can make effective policies to maintain financial stability during pandemics that is very important for the country's economic development.

Understanding the Dynamics of Oil Price Shocks and Stock Market Volatility in Pakistan: A Non-Linear Approach during COVID-19

Purpose: This article examines the complex relationship between oil price shocks and stock market volatility in Pakistan during the COVID-19 outbreak. Design/Methodology/Approach: The study used a Non-Linear Autoregressive Distributed Lag (NARDL) model to meticulously explore how oil price fluctuations, specifically supply and demand shocks, affect Pakistan's stock market. Monthly data sets from 2020 to 2022 were utilized for the analysis. Research Findings: The study's significant findings reveal that oil price shocks, except for a demand shock specific to the oil industry, have varying long- and short-term effects on stock market volatility, leading to asymmetry. This asymmetrical impact of oil supply and demand shocks on stock market volatility is confirmed, with no asymmetry observed from oil-specific demand shocks in the short term. These findings hold crucial implications for policymakers and investors in understanding and managing the economic dynamics of Pakistan post-COVID-19. Theoretical Contribution/Originality: This research stands out for its originality in understanding Pakistan's economic dynamics post-COVID-19. It provides unique insights for policymakers and investors to navigate future uncertainties related to oil price changes and market volatility, thereby sparking new avenues of thought and action in the field. Implications/Originality/Value: The practical implications of this study's findings empower policymakers and investors to make informed decisions to stabilize Pakistan’s economy after the pandemic. Specifically, the research provides guidance on managing the behaviour of stakeholders and banks in response to oil shocks, thereby contributing to the economic resilience of the country.

Impact of Interest Rate on Stock Price, Analysis of Stock Movement of Fauji Fertilizer and Engro Corporation Limited: Evidence From Pakistan Stock Exchange

The objective of this study is to evaluate the impact of interest rate on Pakistani stock market price. Take a teen year ending data from 2009 to 2018 of two companies which is listed in Pakistan stock market (PSX) Fauji fertilizer and Engro Corporation limited. MATLAB tool is used for analysis the secondary data of interest rate and both companies stock price. Study uses the correlation and linear regression approaches in order to evaluate the impact of interest rate on stock price of both companies, the result shows the link between interest rates and stocks is favorable. As the interest rate is increase or decrease the stock price of both companies are increase or decrease.

Exploring the Influence of Post-Earnings Announcement Drift and Investor Sentiments on Investor Trading Behavior: A Qualitative Analysis

"Post-Earnings-Announcement Drift" is a market phenomenon, which refers to investors’ tendency to overreact to the earnings announcements in conducting their investment decisions. However, this effect shows up gradually over the whole period that stock of the company is being sold out following a bullet earnings surprise. Form radically different treatments from the efficient market hypothesis (EMH), where prices of stocks will be able to quickly and fully adjust to any new coming information, it takes time for the drift to reveal itself. This happens as a slow and eventual process. This research study investigates the impact of investor sentiments and post earnings announcements drift on investor trading behavior within the Pakistan stock market context. Twelve participants that comprises of institutional and individual investors, were selected using the convenience sampling methods. Semi-structured interviews were conducted to explore the fluctuations in stock prices, investment strategies, and the market conditions. NVivo software was employed to analyze the interview transcripts, revealing themes related to the fundamental analysis, dividend importance, decision-making strategies, sources of information, investor sentiments, earnings announcements, stock pricing, information leakage, and the market anomalies. The findings highlight the significance of both the rational analysis and emotional responses in investment decisions, the importance of timely earnings disclosures, and the presence of market anomalies and the information leakage.

Integration of Pakistan's stock market with the stock markets of top ten developed economies

This study examines the integration of Pakistan's Stock Market with the stock markets of the top ten largest economies in the world—USA, China, Japan, Germany, the UK, India, France, Italy, Brazil, and Canada—from January 2015 to October 2020. To examine long- and short run integration, this study employed Johansen and Juselius co-integration and pair-wise Granger causality tests. In the long run, the results indicated that Pakistan's Stock Market is not integrated with these markets. This implies that the market is more attractive in portfolio diversification for international investors, and vice versa. In the short run, the results revealed that, except for China, Pakistan's stock market integrates with the remaining nine markets. However, Pakistan's stock market exhibits a bidirectional relationship with the USA, Japan, Germany, the UK, and France in the lead-lag relationship. However, its relationship with India, Italy, Brazil, and Canada is unidirectional, with Pakistan's stock market leading, while these markets are following. For Pakistani investors, China is the optimal market, and vice versa. Importantly, our findings help policymakers to comprehend Pakistan's dynamic relationship with its trading partners. To the best of our knowledge, no prior study has employed advanced techniques to address the time-varying correlation among the selected markets. By determining Pakistan's stock market integration with its trading partners, this study aimed to fill this empirical literature gap.

Nexus between Chat GPT usage dimensions and investment decisions making in Pakistan: Moderating role of financial literacy

This study's primary goal is to investigate and gain better knowledge of the relationship between ChatGPT usage dimensions such as analyzing data, managing risk, optimizing portfolios, forecasting market trends, and conducting sentiment analysis and investment decisions of investors in the Pakistan stock market, as well as the moderating role of financial literacy. The sample for this study included individual stock market investors in Pakistan. Using a self-administered questionnaire and a cross-sectional design, a non-probability convenience sampling technique followed by snowball techniques was used to collect data from 388 active and potential individual investors. The study's findings showed that ChatGPT usage dimensions have a positive and significant impact on investment decision making. Furthermore, financial literacy is found to moderate the relationship between optimizing portfolios, forecasting market trends, and investment decision making. The study's findings outlined practical implications for the researcher, financial advisors, individual investors, governmental decision-makers, policymakers, and stock market authorities who are interested in leveraging the benefits of artificial intelligence and machine learning in investment decision making in the context of emerging economies like Pakistan.

Probability of Stock Price Crashes: A Closer Look towards Pakistan Stock Market

Probability of Stock Price Crashes: A Closer Look towards Pakistan Stock Market

Asymmetric Volatility Spillover among Macroeconomic Variables and Pakistan Stock Exchange

The present research focused on the association of macroeconomic variables uncertainty with the volatility of stock market in Pakistan. The research explored uncertainties in macroeconomic series by common version of EGARCH and GARCH variances were used as proxies of volatilities. Furthermore, the series were incorporated into mean and variance equations to model spillover effect between stock market and indicators of macroeconomy. The association was additionally checked through VECM and Wald test methods. The investigation used monthly observations from January 2001 to December 2020. Findings revealed a significant causality amid macroeconomic volatility and stock exchange volatility. The outcomes also reconciled with Banumathy and Azhagaiah (2015); Wang (2011). A bilateral causal relationship was found between volatilities of gold prices and manufacturing output with stock market, whereas uni-directional causality was from exchange rate, inflation and oil prices toward stock market.

Post COVID-19 Analysis of Conservatism Effect Bias on Individual Investors of the KMI-30 Index at Pakistan Stock Exchange

This study examines how conservative bias affected Pakistan Stock Exchange KMI-30 index investors after COVID-19. The main goal is to assess conservative bias in Pakistani stock market decision-making. Data from 162 respondents was carefully collected and analyzed using logistic regression, association testing, descriptive statistics, and correlation analysis. The study illuminates the impact of conservative bias on Pakistan's stock market investment selections. Both male and female investors react similarly to conservative bias, indicating that gender does not greatly change its effects. Conservative bias is more common in highly educated people, especially those with graduate and doctoral degrees. Younger investors (18-25) are less susceptible than 26-30-year-olds. Investors with one to three years of experience are more conservative, while those with less than a year or over three years are less vulnerable. Marital status barely affects financial prejudice. These findings emphasize the importance of demographic and experience characteristics in investment strategies and financial advice. The study underlines that good investment requires understanding psychological aspects affecting investor behavior, not just numbers. Understanding the human aspect in investment decision-making can help financial advisers, and regulators tailor advice and regulations to the varying needs and vulnerabilities of different investor groups, creating a more informed and resilient investing community.

The impact of “Panama Leaks” on the Stock Market: Empirical Evidence from the Emerging Equity Market

The aim of the present study is to examine the effect of the events related to the “Panama leaks” on the stock market in Pakistan. For this purpose, we have analyzed a total of 24 events related to the “Panama leaks” in Pakistan. These events are further divided into three broad categories i.e. 8 events are related to the news/statements by the opposition parties, 8 events are related to news/statements by Sharif’s family/sitting governments, and 8 events are related to the news/statements by the Apex court in Pakistan. The analyzed period begins on the 1st of March 2015 and has lasted until the 30th of July 2018. This research applies the event study methodology, and overall findings show that “Panama leaks-related news has a significant impact on stock returns in Pakistan. What is more, all the news related to the Apex court in the Panama leaks show a significant positive impact on stock returns. This study provides a guideline to investors, regulators, policymakers, and other stakeholders by proving that all the news related to the “Panama leaks” have a significant impact on stock returns in Pakistan. Future researchers can extend this study by analyzing the impact of the “Panama leaks” on stock returns in all the countries to which the “Panama leaks” are connected.

Foreign Investments and Stock Market: Evidence From Palestine

Purpose: This study aims to examine the association between the different forms of inbound foreign investments and the Palestine Exchange (PEX) index to shed light on the nature of that impact.
 
 Theoretical Framework: Several academic studies have examined stock market index factors. Chen, Roll, and Ross's (1986) seminal study on macroeconomic conditions and U.S. stock returns provides an example. Interest rate, inflation, industrial production, risk premium movements, and dividend yield positively explain expected stock return. Abusharbeh and Karim (2016) found that interest and consumer price index positively affect banking and investment firm profits on The Palestine Exchange (PEX). Shahbaz (2013) examined how foreign direct investment affects Pakistan's stock market. Results supported foreign direct investment's stock market complementarity.
 
 Design/Methodology/Approach: The market index and panel quarterly data for inward foreign investments are used in this study. From 2009 to 2022, end-of-quarter data were collected on total inward foreign investments, their sub-components (direct investments, stock portfolio investments, and currency and deposits in Palestine), and the market index (Al-Quds index) closing value. Fifty-six observations were gathered.
 
 Findings: The study found that the overall model integrating all three types of inward foreign investments significantly explains the market index. Foreign portfolio investments (FPI) are significantly associated with the stock market index. However, the results showed that inward foreign direct investments (FDI) and foreign deposits and currency investments (FCI) have no significant impact on the stock market index, indicating that they do not complement or substitute each other.
 
 Research, Practical & Social Implications: This study can help the stock market, regulators, and policymakers create incentives and regulations to attract different forms of inward foreign investments. It also examines why foreign direct investments (FDI) and foreign deposits and currency investments do not complement or substitute stock market development.
 
 Originality/Value: This study provides empirical evidence on the impact of the different forms of foreign investment in Palestine on the stock market. Further research is recommended to explore additional variables that might be significant, such as market capitalization and market volume.

A Qualitative Study of Behavioral Biases Among Pakistani Investor Decisions

The basic purpose of this study is to highlight the importance of behavioural biases in individual investors' decisions that cause deviation from rationality. It also helps them to accelerate their abilities in investment decision-making. This study used semi-structured open-ended questions to explore the behavioural bias in six individual investors of the Pakistan stock market. The thematic content analysis is used to analyze the data. This study explores eight behavioural biases of the individual investor in the Pakistan stock market and process it does not seem that all the investors will suffer from all the behavioural biases simultaneously. Their decision is based not only on quantitative analysis but also influenced by cognitive, emotional, and social biases. They depend on other sources of information before investing in the stock market. This study focuses on behavioural biases of individual investors of the Pakistan stock market so their results can not be generalized to institutional investors, real estate investors, or any other geographical area due to culture differences, education level, values, and financial structure. As this study explores only individual behavioural bias it leaves many areas that are unexplained for further research like institutional investors behavioural bias, real estate investors behavioural bias with more sample size. The practical implications are it is helpful for companies, policymakers, and securities issuers can observe the investor interest and behaviour before issuing securities into the market. As far as the social implication is concerned it is good for investors to understand the several behavioral biases and make sound investment decisions that mitigate their risk. This paper explores the concept of behavioural biases in individual decision-making and adds value to the existing literature on behavioural finance.

The Role of Behavioral Factors on Investment Decision Making: Moderating Role of Financial Literacy

The purpose of this paper is to examine the impact of behavioral finance factors on stock market investment behavior. Moreover, it also determines the moderating role of financial literacy in behavioral finance factors and stock investment in Pakistan. Studies have been conducted on Pakistan Stock market investors. Data has been collected through a structured questionnaire. The survey was performed among 165 investors in the Pakistan stock market. SPSS and Smart PLS 3.0 were used to test the hypotheses. The study concluded that Overconfidence, Herding, Loss Aversion, and Risk Perception significantly impacted the performance of Stock Investment decision-making. Moreover, Stock Investment decision-making was also moderated by Financial Literacy except for risk perception. The findings of this study would help to comprehend the behavior of investors in the Pakistan stock market. Moreover, to achieve favorable outcomes, investors must possess financial literacy about the stock market.

Untangling the Puzzle of Cash Holding Net Working Capital & Financial Performance: A Case of Pakistan Stock Market

Purpose:This study examines the impact of liquidity, cash flow operations, and cash holding on a firm’s profitability, with a moderating role of net working capital.The trade-off and pecking order theories are studied to formulate hypotheses to test the explanatory variables that affect a firm’s profitability of companies in Pakistan Stock Market.
 Methodology:The quantitative approach was used in this study and the panel data of selected companies were extracted from the Osiris database from 2009 to 2018.
 Findings:The results show a significant positive connection between liquidity, cash flow operations, cash holdings, net working capital and ROA. As a result, the study’s model was accepted, explaining that liquidity, cash holdings, and cash flow operations positively and significantly affect the ROA.
 Implications/Originality/Value:Limited evidence is available regarding the impact of net working capital on the affiliation between cash holding and profitability within the Pakistan Stock Market. The present study endeavors to address the above gap by investigating the moderating impact of net working capital on the association between selected factors of cash holding and profitability.

Symmetric impact of Trade, exchange rate, and inflation rate on Stock Market in Pakistan: New evidence from Macroeconomic variables

This study's primary objective is to investigate how the stock market affects the rate of inflation, exchange rate, US dollar and trade are related to each other or not. The regression analysis or Pearson correlation is used. Secondary and monthly data is used. This research solve the Pakistan stock market is considerably impacted inflation rate, exchange rate US dollar, and trade. The findings indicate that there is a considerable positive correlation between the inflation rate and the stock market. The US dollar exchange rate has a substantial negative correlation with the Pakistani stock market. Conversely, trade and the Pakistani stock market have a strong positive correlation.

The Validity and Reliability Performance Evaluation of the Fama-French Six Risk Premium Factors Model: Evidence from the Capital Stock Market of Pakistan

The study goal, aims, purpose and objective are to examine the Validity, Reliability and Performance Evaluation of the Fama-French Six Risk Premium Factor’s Model: Evidence from Capital Stock Market of Pakistan. The sample used were the balance sheet and Income statements annual reports of an eligible Non-Financial Companies issued from a State Bank of Pakistan (SBP). However, the idea for portfolio creation and a breakpoint have taken from keneath french data side. The sample data is 130 Non-Financial Companies covering the actual analysis from July 2014 to June, 2019. The (2x2) = 4 sort approaches for emerging markets and returns are used to construct portfolio and breakpoints for the SMB, HML, RMW, CMA, and WML other than Mkt-Rft. A total set of 16 set of portfolios are designed from dual categorization (Bivariate) designed for separately couple of size and one additional factor. A whole set of (4x4= 16), portfolios shaped as a dependent factor typically recognized as left-hand-side portfolios (LHS) and the same for independent risk premium factors for right hand side (RHS). The study found and concluded regarding the intercepts that all 16 set of four portfolios are insignificant and there are no pricing errors in the time of cost determination and predictions. The other objectives regarding slopes are found and concluded that the slopes of all risk premium i.e., MKT, SMB, HML, RMW, CMA, and WML and along with error correction term ECT (-1) are all positives and negatives and also statistically significant and explaining and predicting the average portfolio returns for 16 set of portfolios excess returns. The third main objectives regarding the other performance evaluation indicators, proposed to FF6F model’s relatively greater descriptive and explanatory power in each group of portfolios. Further, the value of R-squared is less than Durbin Watson value, means there is no sign of spurious linear regression too. Finally, it is found and concluded that the quality criteria suggests that the small values of Avg|α| or Avg|α-α ̅|in all equations are as the better model. It is further found and concluded that the Avg|α| of all six risk premium factors asset pricing models are the lowest values and acceptable range. It also further found and concluded that the fGRS and pGRS display the alpha is insignificant for 16 set of portfolios The research identifies that the asset pricing models are relatively more effective for diversified portfolios than concentrated portfolios and it is challenging to find a model that is effective in explaining the variation in the returns of any portfolio, but there is the possibility of finding a portfolio which works for a model and the investors can maximize their returns with a carefully chosen portfolio based on particular characteristics with a fewer number of stocks. Study proposes that corporate managers, policymakers, financial experts, and individual investors should have a stronger understanding of how to forecast stock prices on the Pakistan Stock Market, since it will help them when they are making investment decisions.

Deciphering equity style returns: An analysis of size and value anomalies in the Pakistani stock exchange

This study aims to identify the underlying causes of variation in the time series and cross-sectional equity style returns in the emerging stock market of Pakistan. We use asset pricing models and incorporate variables reflecting business cycle fluctuations to assess the time-varying size and value premiums. The methodology of this paper involves constructing style portfolios based on firm-specific characteristics such as market capitalization, price to earnings ratio, book-to-market equity ratio, momentum, and asset growth. We find that the style portfolios earn abnormal returns consistently which cannot be explained either through asset pricing models or business cycles variables. However, the size and value premiums are found to be subsided during the troughs of economic cycles. The results suggest that the abnormal returns for style portfolios are likely driven by firm-specific characteristics rather than macroeconomic factors. Overall, this study contributes to the literature on style investing by providing insights into the profitability of equity style portfolios in the Pakistani equity market. Our findings have implications for stock picking, investment management and risk factor analysis.