How Demutualization of Pakistan Stock Exchange Affected Determinants of Foreign Portfolio Investment in Pakistan?

Abstract

The study in hand is focused on determinants of FPI in Pakistan. However, a pre & post analysis of demutualization of Pakistan Stock Exchange (PSX) is conducted in this study which makes it unique and helps in analyzing the effects of demutualization of stock exchange on the determinants of FPI. This study looks at the determinants of FPI i.e. Exchange Rate, Interest Rate, Inflation, FDI, Market Capitalization in pre and post demutualization of stock market of Pakistan. Foreign Capital Inflows are generally categorized into FDI and FPI. Portfolio investment is one of the significant parts of private investment. The focus of this study is FPI. This study examines the determinants of FPI in Pakistan in pre and post demutualization of stock exchange scenario. Pre demutualization of stock market data (on monthly basis) of 7 years (2006-2012) is taken and post demutualization of stock market data (on monthly basis) of 7 years (2013-2019) is taken for analysis. This study applies co-integration test to analyse the relationship among variables. The research found that in the pre-demutualization period, exchange rate, inflation and market capitalization were factors that impacted foreign portfolio investment significantly. On the other hand, in the period after the demutualization of Pakistan stock exchange, the only significant factor to affect foreign portfolio investment of Pakistan has been the exchange rate. The recommendations of this study are useful in examining the impact of various factors on FPI in pre & post demutualization of PSX era. The scope of the study can be enhanced by conducting the similar studies of the other countries of south Asian Region and also by considering few other factors such as political stability, terrorism, GDP growth etc. The developed economies especially where demutualization is already implemented may also be included in the scope of study to analyze determinants of FPI.