Please use this identifier to cite or link to this item: http://prr.hec.gov.pk/jspui/handle/123456789/20516
Title: Stochastic Behavior of Stock Market Prices: A Myth or Reality (An Empirical Analysis of Pakistan Stock Market)
Authors: Saeed, Ahmad
Keywords: Bussiness & Management
Business Administration
Issue Date: 2022
Publisher: Gomal University, D.I.Khan.
Abstract: Understanding the phenomena of stock prices behavior is very important for policymakers, regulators, investors, and practitioners in the equity markets. The purpose of the study is to examine the stochastic nature of equity instruments’ prices. The study used stock prices and returns to reflect the behavior of equity instruments prices in stock markets. Monthly data of exchange rates, interest rates, inflation rates, economic growth rates, and political risks from 1998 to 2018 are used to analyze the stock market prices and returns behavior in Pakistan. Univariate, Bivariate, and Multivariate time series analysis techniques are used to understand the behavior of equity instruments prices and their dependence on macroeconomic and political risk factors. Variance ratios, ARIMAX, GARCH, Co-integration, Granger causality, Markov Switching Dynamic Regressions, and Moderation Analysis are the techniques employed in the analysis to decide about the myths and realities associated with the stock market price behavior. The study analyzed the moderating role of political risk in the relationship between macroeconomic factors and equity instruments prices. Individual and joint variance ratio results depicted that the behavior of the stock prices is a random walk. Significant ARCH and leverage effect in prices is founded. The results of the study revealed that good news has more impact than bad news. The stock price is positively and significantly correlated with the exchange rate and economic growth rate. It is negatively and significantly correlated with inflation and political risk. The political risk significantly moderates the relationship between exchange rate and stock prices, inflation and stock prices, interest rate and stock return; and inflation and stock return relationship. The results of the analysis showed a significant random component in the behavior of prices and returns. Current information about the analyzed exogenous variables and historical information of stock prices significantly cause stocks prices and returns behavior in the Pakistan stock exchange. The study concluded that the behavior of prices in Pakistan is dynamic and stochastic. Stock prices and returns behavior in equity markets depicted the evidence of memory of its recent past. Macroeconomic developments and political risk situations are significantly related to the behavior of prices of equity instruments. The impact of these factors varies over time with the changes in states. Results of moderation analysis showed that the political risk reduces the positive impact of currency devaluation and increases the negative effect of inflation on stock prices. Results of the study supported the adoption of active investment strategy as compared to passive investment strategy for a healthier performance in the equity investment portfolios. The findings of the study are based on the data analysis of the equity market of Pakistan only. Key Words: Pakistan stock exchange limited, Stock price and return, Stylized facts, Random or stochastic behavior, Political risk.
Gov't Doc #: 25954
URI: http://prr.hec.gov.pk/jspui/handle/123456789/20516
Appears in Collections:PhD Thesis of All Public / Private Sector Universities / DAIs.

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