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Sectoral integration and investment diversification opportunities: evidence from Colombo Stock Exchange

Author

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  • Awais Ahmed

    (University of Lahore)

  • Rizwan Ali

    (University of Lahore)

  • Abdullsh Ejaz

    (University of Lahore)

  • Ishfaq Ahmad

    (University of Lahore)

Abstract

This study examined the diversification opportunities within sectors of Colombo Stock Exchange by measuring co-integration among sectors. Those sectors of CSE which are not integrated with others offer good diversification opportunities. Moreover, the study also applies Granger Causality Test to determine which sectors of CSE cause other sectors. This helps an investor informing a diversified portfolio. This study employed daily closing indices of all sectors listed in Colombo Stock Exchange during the period from 1-12-2003 to 31-8-2016. Multivariate Co-integration and Pairwise Co-integration Tests are applied to determine integration among sectors and Granger Causality to determine causal relation among these Sectors of CSE. Stationarity by unit root test revealed that the fourteen sectors are selected for running cointgeration at Level 1. Findings examined that no sector is integrated with other sectors. Thus, CSE provides excellent diversification opportunity to the investors. From an investor point of view, the findings of the study are helpful for a well-diversified portfolio by selecting stocks from those sectors which are not integrated with other sectors and minimize the unsystematic risk. This study significantly contribute the existing literature particularly those investors who want to diversify their portfolios domestically rather internationally.

Suggested Citation

  • Awais Ahmed & Rizwan Ali & Abdullsh Ejaz & Ishfaq Ahmad, 2018. "Sectoral integration and investment diversification opportunities: evidence from Colombo Stock Exchange," Post-Print hal-01773967, HAL.
    • Handle: RePEc:hal:journl:hal-01773967
    DOI: 10.9770/jesi.2018.5.3(8)
    Note: View the original document on HAL open archive server: https://hal.science/hal-01773967
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    References listed on IDEAS

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    1. Huang, Bwo-Nung & Yang, Chin-Wei & Hu, John Wei-Shan, 2000. "Causality and cointegration of stock markets among the United States, Japan and the South China Growth Triangle," International Review of Financial Analysis, Elsevier, vol. 9(3), pages 281-297.
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    3. Ghosh, Asim & Saidi, Reza & Johnson, Keith H, 1999. "Who Moves the Asia-Pacific Stock Markets--US or Japan? Empirical Evidence Based on the Theory of Cointegration," The Financial Review, Eastern Finance Association, vol. 34(1), pages 159-170, February.
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    Cited by:

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    2. Azra Zaimovic & Adna Omanovic & Almira Arnaut-Berilo, 2021. "How Many Stocks Are Sufficient for Equity Portfolio Diversification? A Review of the Literature," JRFM, MDPI, vol. 14(11), pages 1-30, November.

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    Keywords

    diversification; sectoral integration; portfolio; investment choice; Colombo Stock Exchange;
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