Stock Market Integration And Its Macroeconomic Determinants: A Case Study Of Pakistan And Its Trading Partners
Author: Bisma Shoukat

The study examines the presence of integration in Pakistan with its trading partners i.e. Australia, China, Saudi Arabia, India, USA, UK, Kuwait, Malaysia and Japan using daily stock market indices. It further explains the impact of country’s macroeconomic factors on stock market integration between Pakistanand its nine trading partners. The study considers annual data formacroeconomic variables such as: bilateral trade (imports and exports), Gross Domestic Product (GDP), inflation rate (INF), exchange rate (XR), real interest rate (RINT), exchange rate volatility andstock market capitalization (SMC). The findings from Geweke contemporaneous feedback measures (GCFM) provide supportive evidence of increase in stock market integration inrecentyears. The results fromGCFM are taken againstthe macroeconomic variables in the panel regression modelhighlighting that imports have negative association while Exports and inflation rate are positively associated with stock markets integration over time. A reasonably clear time trend is identified. With an overall variation of 22.5% in economic integration over time, the extent of contemporaneous relationship for India, Malaysia and Kuwait has shown significant integration. These interdependencies might be due to changingeconomic as well as market conditions in Pakistan, also due to the stability of global markets. While diversification opportunities can be achieved by Investors in other less integrated markets through buying and selling of their assets in international platforms.This study will be very helpful for policy makers, researchers and investors as well as corporate managers Supervisor:- Dr Arshad Hassan

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Supervisor: Arshad Hassan

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