The Effect of Stock Markets of Major Developed Countries on Pakistan Stock Market

Abstract

The study tests the relationship among stock markets of selected developed countries and Pakistan stock market for 12 years from the period Jan. 1994 to Dec. 2016. The objective of this research is to analyze the long-run relationship of stock markets of USA, Japan, and Australia with Pakistan stock market. Researcher includes KSE 100 Index as dependent variable and S&P 500, ASX 200, and Nikkei 225 as independent variable for this particular study and applies Augmented Dickey-Fuller Test (ADFT), Co integration test, OLS regression and VECM test on secondary data of weekly index prices with total observation of 1200 to find out long run and causal relation between selected variables. Results of models indicate that models are valid and are applicable in the stock markets of selected countries. By applying these tests researchers conclude that all independent and dependent variables have a positive and significant relationship during the proposed period of this particular study.