Abstract:
This study has been conducted to examine the determinants of stock market co movement
between Pakistan and emerging economies for the period 2001 to 2014. The results of
Johansen and Juselius cointegration tests reveal that there is long term integration
between the stock market of Pakistan and the stock markets of Brazil, Chile, China,
Egypt, India, Indonesia, Israel, Korea, Malaysia, Morocco, Poland, Thailand and Turkey.
This study investigates the determinants of stock market co-movement between Pakistan
and emerging stock markets where cointegration is found. Results of the panel data reveal
that there are four significant underlying forces of integration between Pakistan and
emerging stock markets. These are GDP growth rate differential, inflation rate
differential, world market volatility and quarter effect.
This study also reports the driving forces of co-movement between Pakistan and each
emerging market where the co-integration is found. It has been found that no similarity is
found in the determinants of integration between Pakistan and each emerging stock
market. This study also reports the determinants of stock market co-movement between
Pakistan and emerging markets before crisis (2004 Q1 – 2007 Q3), during the crisis (2007
Q4 – 2009 Q4) and after the crisis period (2010 Q1 – 2014 Q4). It has been found that the
determinants of integration between Pakistan and emerging markets vary before, during
and after the crisis indicating that such determinants are crisis contingent variables.
This study contributes to the literature of stock-market integration by exploring
fundamental determinants between Pakistan and emerging economies. The findings of
this study have significant implications for policy makers in Pakistan while designing the
strategies for macroeconomic harmonization and stability of the country’s economy
against financial shocks.
