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|Macro-Economic Determinant & Interdependence of Stock Markets: Evidence From Emergigng Economies
|Rafiq, Muhammad Asim
|Bussiness & Management
|University of Karachi, Karachi.
|The purpose of the study is threefold. First, is to examine the long-term interdependence between China and the ten emerging economies, including Pakistan, Malaysia, Philippine, Indonesia, India, Hungary, Mexico, Russia, South Africa and Brazil using Johansen co-integration. Second, is to measure the time-varying interdependence between China and the ten emerging economies using DCC GARCH model. Third, is to examine the impact of macroeconomic determinants on stock markets conditional correlations using panel regression using monthly data from 2010 to 2017 is employed. Results of the Johansen co-integration indicate that there is long-term interdependence between China and the other ten emerging economies. Furthermore, The results of DCC GARCH model support that China has a higher positive significant correlation with Pakistan, India, China, Indonesia, Malaysia, Philippine, Hungary, Mexico, Russia and South Africa. Finally, the results of the panel regression show that macroeconomic determinants have no significant effect on the equity market correlations between China and its companion emerging economies. It this, therefore, we can conclude that there is long run interdependence between the Chinese and the other emerging economies. Furthermore, this interdependence is also dynamic over the time. However, there is no significant impact of the macroeconomic determinants on the stock market interdependence between Chinese and the ten emerging economies. The policymakers must be aware of the economic changes in those countries as they will closely reflect on their stock market performance and relationship. Similarly, the global investors need to be aware of the fact that the diversification opportunities among emerging economies have considerably declined over time as their markets became more interdependent recently. Keywords: Co-integration; DCC GARCH; Macro-economic determinants; Panel regression
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