Financial Economics
Abstract
The purpose of this research is to study the long run relationships and co movement among
the stock markets of Pakistan and other Asian stock markets i.e. India, Malaysia and Indonesia. Over
the period of Jan 1, 1998 to October 3, 2011. This paper examines the co-movement among stock
markets of Pakistan, India, Malaysia and Indonesia. Descriptive statistics, correlation, co-integration
tests are run to check the behavior and co movement of markets. Granger causality test is used to
check the lead lag relationship. Impulse response tells about the one standard deviation change in
market bring what standard deviation change in other market. Variance decomposition technique is
used to decompose the variance in one market due to change in another market and due to its own
dynamics i.e. economic and political conditions also affect the market. The results shows that the four
markets Pakistan, India, Malaysia and Indonesia are weakly correlated with each other and find no
co-integration. Variance decomposition shows that most of the change in above listed countries is due
to their own factors. Number of studies has been conducted on developed markets like United States
of America, United Kingdom, France, Japan Canada and underdeveloped countries, but this paper
focuses on emerging markets of Asia.
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