An Analysis of the Dynamic Linkages of Pakistani Stock Market with the World’s Leading Stock Markets

Using the theoretical framework of International Portfolio Diversification (IPD), study explores long-run relationship between Pakistan Stock Exchange (PSX) and world's six leading stock exchanges Canada, China, France, Japan, United Kingdom, States. These markets are represented by indices such as KSE-100 index (Pakistan), TSX (Canada), SSE Composite (China), CAC-40 Index (France), Nikkie-225 (Japan), FTSE-100 (UK) DJIA (US). An extended sample period 27 years, has been studied ranging from 1991 to 2018, using daily, weekly, monthly frequencies. This paper investigates existence cointegration among employing Johansen Juselius bi-variate multivariate co-integration techniques. The Augmented Dicky Fuller (ADF) Phillip Perron (P-P) test indicate that all series non stationary at level, whereas they first difference form. In addition, results show Pakistani market is weakly linked with rest markets. findings confirm two co-integrating equations—France UK integrated on daily data, while China Canada data. essential implication deduced this result these loosely connected each other over investigated. Hence, international investors seeking reduce risk can diversify their portfolio including in pool investment.