Analysis of Long-Run Relationship between Karachi Stock Exchange and Major Asian Exchanges

Abstract

This research thesis examines the long term relation between Karachi Stock Exchange and major Asian Exchanges by using integration analysis. It is debated that if stock markets are collectively efficient in the long run then these stock markets are not cointegrated, that is, have no long run relationship. On the other hand the presence of cointegration suggests evidence of an inter-reliant relationship between the stock markets. By using Johansen Cointegration technique and Engle-Granger two step methods, the results of this study suggests that Karachi Stock Exchange has no long term relation with other Asian stock exchanges as there was no evidence of cointegration found between Karachi Stock exchange and other Major stock exchanges of Asia. From the investor's point of view these results would suggest that there is great possibility for efficient portfolio diversification across these markets.