Abstract
This study examines the co-movement of Pakistan’s stock market with eighteen emerging stock markets of Argentina, Brazil, Chile, China, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Korea, Malaysia, Morocco, Philippines, Peru, Poland, Thailand and Turkey. To check the co-movement, co integration test on daily stock prices from the period of January 2001 to December, 2014 is used. The results show that there is no long term integration between the stock market of Pakistan and the stock markets of Argentina, Czech, Hungary, Philippine and Peru. Such results show that there are chances for the investors of these countries to get the benefits of diversification strategies in the stock market of Pakistan. In addition to this, the Pakistani investors can also reduce the risk in these stock markets by adopting the strategy of portfolio diversification. On the other hand, the results of this study 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. Such results show that Pakistani investors cannot reduce the risk while investing in these countries. In the same manner, the investors from these countries cannot obtain the benefits of portfolio diversification with their investments in the stock market of Pakistan. In addition, countries of integrated stock markets thus require closer collaboration among the policy makers.
Keyword(s)
Integration, Co-movement, Portfolio Diversification, Financial Stability