Abstract:
The motivation of this research is to capture the dynamic properties of the Pakistan Stock Market. Stock market dynamics examine stock return fluctuation to provide some plausible explanation for returns. This study discusses trading irregularities under the dynamic behavior of stocks and provides plausible explanations of such irregularities. It also examines investor safeguards, focusing on calendar anomalies. This study seeks to find the answer of following questions: How to locate irregularities in the Pakistan Stock Market? What are some acceptable reasons for the anomalies and what is the long- and short-run behavior of an anomaly? We obtained the research data from the Pakistan Stock Exchange (PSX) from 2008 to 2017, covering 10 years of daily continuous returns. This study has contributed in the existing body of knowledge by exploring the long as well as short term association of risk and return under the vector error correction model (VECM) environment and identification of the anomalies through volatility clustering in the long run. Volatility clustering is also an indication of anomalies and justifies the application of the ARCH and GARCH models. The results show strong evidence of the weekday effect, as Monday returns seem to be negative and Friday returns, positive. ARCH and GARCH estimation is also significant in explaining the volatility of stock returns. Finally, the VECM model can best explain the dynamics of anomalies in the short as well as long run
