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What Drives Stock Market Growth? A Case of a Volatile Emerging Economy

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  • Syed Mujahid Hussain
  • Timo Korkeamäki
  • Danielle Xu
  • Ashfaque Hasan Khan

Abstract

We study the determinants of the explosive stock market growth and increased foreign portfolio investment in Pakistan. Our results indicate that in contrast to evidence from developed markets, the aggregate stock returns are not driven by macroeconomic fundamentals in Pakistan. Moreover, foreign portfolio investors do not tend to react to changes in economic variables in Pakistan. As fundamentals fail to affect stock returns in Pakistan, they may be based more on speculative motives. Our results suggest that in the absence of a strong institutional and regulatory framework, economic policies have only a limited effect on stabilizing an emerging market.

Suggested Citation

  • Syed Mujahid Hussain & Timo Korkeamäki & Danielle Xu & Ashfaque Hasan Khan, 2015. "What Drives Stock Market Growth? A Case of a Volatile Emerging Economy," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(1), pages 209-223, January.
    • Handle: RePEc:mes:emfitr:v:51:y:2015:i:1:p:209-223
    DOI: 10.1080/1540496X.2015.1011533
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    Cited by:

    1. Ali M. Kutan & Mehmet E. Yaya, 2016. "Armed conflict and financial and economic risk: evidence from Colombia," Risk Management, Palgrave Macmillan, vol. 18(2), pages 159-187, August.
    2. Abdul Wahid & Muhammad Zubair Mumtaz, 2018. "The Paradigm Shift in the Pakistan Stock Exchange’s Financial Integration Post-FTA and CPEC," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 23(1), pages 21-50, Jan-June.
    3. Malik Shahzad Shabbir & Laila Refiana Said & Irem Pelit & Esma Irmak, 2023. "The Dynamic Relationship among Domestic Stock Returns Volatility, Oil Prices, Exchange Rate and Macroeconomic Factors of Investment," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 560-565, May.
    4. Law, Siong Hook & Kutan, Ali M. & Naseem, N.A.M., 2018. "The role of institutions in finance curse: Evidence from international data," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 174-191.
    5. Qureshi, Fiza & Kutan, Ali M. & Ismail, Izlin & Gee, Chan Sok, 2017. "Mutual funds and stock market volatility: An empirical analysis of Asian emerging markets," Emerging Markets Review, Elsevier, vol. 31(C), pages 176-192.
    6. Candauda Arachchige Saliya, 2022. "Stock market development and nexus of market liquidity: The case of Fiji," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(4), pages 4364-4382, October.

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