STOCK MARKET COINTEGRATION: EVIDENCE FROM DEVELOPED AND DEVELOPING EQUITY MARKETS

Waqas Siddique, , Muhammad Usman Arshad, Muhammad Sufian Sufiyan, Sohail Aslam, Fahad Najeeb


DOI: http://dx.doi.org/10.22555/pbr.v17i4.550

Abstract


This study examined the relationship between KSE and stockmarkets of developed and developing countries for the period of 2000-2012. Cointegration approach showed that one cointegrationequation exists in KSE and developed countries equity markets andtwo cointegration equations exist in KSE and developing countriesequity markets case. Granger causality test showed a uni-directionalrelationship between KSE and developed and developing markets,and a bi-directional relationship with Taiwan’s equity market.Variance decomposition analysis showed that most of the changes inKSE are due to its own dynamics in both the developed and developingmarkets. Correlation matrix shows that there is a weak or nocorrelation between the KSE and developed and developing countriesso the benefit of diversification can be achieved by investing in KSE.

Keywords


Diversification, cointegration, developed markets, developing markets.

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