Economic Integration of Stock Markets: An Evidence from Pakistan, China and Malaysia Stock Exchanges

Abstract

The last decade Pakistani Equity Market witnessed a lot of favorable and unfavorable happenings which lead tointernal markets collapse. The local investors are interested especially in the countries like China, Malaysia, UAEand Bangladesh which are politically, geographically and strategically important as investment portfolio point ofview. It is experimented that if different equity markets of world are co-movement i.e. there exist long-termrelationship, then the benefit of diversification by investing in different equity markets cannot be attained. Therefore,this study is important, which has explored the short/long term co-integration relationship of selected economies withPakistani Equity Market. The main purpose and scope of this study was to explore causal and dynamic linkages ofKarachi Stock Exchange, KSE-100 index (Pakistan) with emerging stock markets of Shanghai Stock Exchange, SSE(China), Kuala Lumpur Stock Exchange, KLSE (Malaysia). The study explores that the major change in KSE-100 isdue to its own innovations and other markets have no significant impact on the KSE. The results show the need offuture study to explore the factors of economic integration among these stock markets.Problem StatementThe local investors are feeling themselves much insecure in indigenous investment. This study is important in which itwill be explored that the selected Asian Stock Markets have any short/ long-run co-integration relationship withPakistani stock Market or not. Thus the aim and purpose of the current research is to study the relationship andpossibility of mutual investment in these stock markets.Aim of the Study: The main aim of the current study in hand is to investigate and explore both dynamic and causallinkages ofKSE-100 index (Pakistan) of Karachi Stock Exchange, with emerging equity markets Shanghai StockExchange, SSE (China) and Kuala Lumpur Stock Exchange, KLSE (Malaysia).Objectives of the study: The prime objective of the current study is to analyze short term, long term co-integrationand trading pattern with the selected stock market i.e. Pakistan, Malaysia and China.Research Question: Does Pakistani Stock Market (KSE) have any short term/long term co-integration relationshipwith selected Markets?Significance of the Study: The research is having significance to see the past and identify the issue which are creatinghurdles in investment and see the future possibilities to have an advantage from each other experiences for growth.