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Is Pakistani Equity Market Integrated to the Equity Markets of Group of Eight (G8) Countries? An Empirical Analysis of Karachi Stock Exchange

Author

Listed:
  • Syed Muhammad Aamir Shah

    (Allama Iqbal OpenUniversity, Islamabad)

  • Muhammad Husnain

    (Mohammad Ali Jinnah University, Islamabad)

  • Ashraf Ali

    (Mohammad Ali Jinnah University, Islamabad)

Abstract

This study looks at the dynamic relationship between the Pakistani equity market and equity markets of Group of Eight countries (G8) which includes Canada, France, Germany, Italy, Japan, Russia, UK and USA by using weekly time series data starting from June 2004 to May 2009. Multivariate Co-integration approach by Johnson and Julius (1990) shows there exists no long-term relationship between the G8 and Pakistani equity market. Vector error correction (VECM) model suggests that 100% of the lag periods disequilibrium has been corrected in the current period. Pairwise Granger Causality test shows that there exist a unidirectional causality between the equity market of Pakistan and the markets of France, Germany, Italy, Japan and United Kingdom. Impulse response analysis and variance decomposition analysis reveal that most of the shocks in Pakistani equity market are due to its own innovation and behave like exogenous. However, the markets of France, Japan, Germany and United Kingdom are exerting a little pressure on Pakistani equity markets. Therefore, by investing in Karachi Stock Exchange (KSE) the fund manager of G8 countries especially Canada, Italy, Russia and USA is capable of getting the advantage of portfolio diversification.

Suggested Citation

  • Syed Muhammad Aamir Shah & Muhammad Husnain & Ashraf Ali, 2012. "Is Pakistani Equity Market Integrated to the Equity Markets of Group of Eight (G8) Countries? An Empirical Analysis of Karachi Stock Exchange," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 15(45), pages 289-324, September.
    • Handle: RePEc:rej:journl:v:15:y:2012:i:45:p:289-324
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    References listed on IDEAS

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    More about this item

    Keywords

    G8 Stock Markets; Pakistani Stock Market; Cointegration; Portfolio Diversification;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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