Open AccessGlobal Portfolio Diversification and Equity Market: Evidence from Trading Partners of Pakistan
Author(s) -
Muhammad Husnain,
Um-e Habiba,
Shahnaz Arifullah,
Muhammad Izhar
Publication year - 2018
Publication title -
jinnah business review
Language(s) - English
Resource type - Journals
eISSN - 2307-7921
pISSN - 2070-0296
DOI - 10.53369/wuoi1781
Subject(s) - equity (law) , diversification (marketing strategy) , financial economics , portfolio , equity capital markets , business , cointegration , economics , private equity , finance , econometrics , political science , marketing , law
The influential work of Markowitz (1952, 1959) provides foundation to modern investment philosophy. Investors can reap the potential benefit of portfolio diversification only if the involved asset classes in investment basket are not perfectly correlated. Objective of this study is to empirically investigate the cointegration among equity market of Pakistan and its major trading partners (China, France, Germany, Hong Kong, Japan, Korea, Malaysia, UK and USA). Sample period of study starts from 2004 to 2015, on weekly basis. Bivariate cointegration (Johansen, 1991, 1995) analysis reveals that equity market of Pakistan has no long term relationship with any of the equity markets of its major trading partners. Therefore, we recommend to potential investors, portfolio managers, and policy makers that prospective benefit of portfolio diversification can be achieved by investing in the equity markets of major trading partners of Pakistan. Further, they should be vigilant regarding the co-movement among equity markets during portfolio management decisions.