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The study investigates the impact of bilateral trade, economic fundamentals and financial crisis on the equity market integration (EMI) of Pakistan’s equity market with its major global trading partners (China, India, USA and UK) for the period 1998 to 2016. The findings of the study indicate that bilateral trade and economic conditions have a significant impact on EMI, the export dependence of two economies may increase the EMI and import dependence reduces the EMI of two economies. Moreover, inflation differential and volatility in the bilateral exchange rate have a negative impact on EMI. It implies that inflation rates in Pakistan’s equity market are higher as compare to other markets and volatility in bilateral exchange rate may reduce trade flows and its tendency to follow other market (Bracker, Docking , & Koch, 1999). Furthermore, the financial crisis in an economy may reduce the EMI with its trading partners and EMI between different markets is affected by their bilateral economic fundamentals. The results imply that financial integration between different markets is affected by their bilateral economic fundamentals. The study has strong implications for international investors who need to assess risks and benefits associated with international portfolio diversification.

We investigate further the inconsistencies of the diversification–performance nexus by introducing information asymmetry as a mediating factor. Data of 12,176 firms from eleven developing, emerging and developed economies over the 2010–2017 period were used to conduct a panel data analysis excluding the financial industries. To test the impact of corporate diversification on firm performance, we use a firm-year fixed effects panel data model to control for firm heterogeneity and any other unobservable firm-level attributes, for example, management quality, corporate norms, and culture which are supposed to be time-invariant and may influence the results. The findings are qualitatively valid when we use system dynamic panel data General Methods of Moments (GMM) estimator for endogeneity concerns. Besides, we follow a three-step procedure proposed by Muller and Judd (J Pers Soc Psychol 89(6):852–863, 2005) to test the potential mediating effect of information asymmetry. We find that industrial diversification is significantly and positively associated with firm performance while international diversification shows no effect on performance in developing and emerging markets. We also find that information asymmetry strongly mediates the relationship between corporate diversification strategies and firm performance in developing and emerging economies as compared to developed economies. Our findings suggest that corporate diversification is not considered as a value decreasing strategy that calls for more attention of regulators on enabling managers to show the potential advantages of corporate diversification that generates a positive signal to shareholders.

Bitcoin is an online communication protocol, which facilitates electronic transactions. It has grabbed the attention of investors and researchers in the recent past. The non-regulatory feature of Bitcoin makes it riskier and the element of speculation in its trading is higher than any other financial asset. The study provides an insight into the price dynamics of Bitcoin by examining the day of the week and month of the year effect for the period 2013 to 2017. The findings of the study indicate the existence of seasonality in the return behaviour of Bitcoin as returns for Monday is higher than any other day of the week. Likewise, the returns earned during the month of November are significantly different from other months of the year. The results of the study assert a violation of the assumption of weak-form market efficiency and imply that the Bitcoin market provides an opportunity for the investors to exploit the market from its predictable behavior and fetch abnormal gains.

In this paper, we examine whether jumps matter in both equity market returns and integrated volatility. For this purpose, we use the swap variance (SwV) approach to identify monthly jumps and estimated realized volatility in prices for both developed and emerging markets from February 2001 to February 2020. We find that jumps arise in all equity markets, however, emerging markets have more jumps relative to developed markets, and positive jumps are more frequent than negative jumps. In emerging markets, the markets with average volatility earn higher returns during jump periods, however, highly volatile markets earn higher returns during jump periods in developed markets. Furthermore, markets with low continuous returns and high volatility are more adversely affected during periods of negative jumps. The average ratio of jump variations to total variation shows considerable variations due to jumps. Integrated volatility is high during periods of negative jumps, and this pattern is consistent in both developed and emerging markets. Moreover, the peak volatility of stock markets is observed during periods of crises. The implication of this study is useful in the asset pricing model, risk management, and for individual investors and portfolio managers for both developed and emerging markets.

This study examines the interrelationship among Basel capital regulations, risk, and efficiency of Pakistani commercial banks from 1997-2015. It uses the Generalized Method of Moments (GMM) technique from beginning of capital regulation in 1997 to 2015. We find that bank capital regulation reduces the bank risk. As far as the impact of capital regulation on bank efficiency is concerned, it reduces the bank efficiency. Our results also indicate that the effect of capital regulation on bank risk and cost efficiency is different for each of the Basel accords. Moreover, Basel II was more successful than Basel I in reducing the risk taken by banks, while its impact on the cost efficiency of banks was negligible.

This study explores the relationship between market volatility and momentum profitability. This study indicates that market state volatility has significant power to forecast momentum payoffs, especially in negative market states. The results are the context in the presence of market state and business cycle variables. Market premium is significant and negative. Market volatility is also found negatively influencing momentum profits. Volatility is divided into volatility in the positive market and volatility in the negative market. Both are significantly and negatively influencing momentum profits. Vol+ and Vol- both have negative signs; Vol- is dominant in terms of the magnitudes of the coefficient and the t-statistics. Business cycle effect measured by term and yield is not found significant. Non-linearity has not been observed regarding the term. Results are found robust for market adjusted momentum payoff. The study also explores the impact of market state, volatility and business cycles on the return of loser and winner portfolio. This study reports that returns of the loser portfolios are explained by market component, whereas volatility is found to be insignificant. The macroeconomic variables TERM, TERM2 and YLD show signs of statistical significance. Market factor is significantly and positively influencing winner portfolios. The results indicate that volatile markets forecast low returns on winner stocks. Return dispersion used to measures cross-sectional is also found significant. The study recommends that investors should devise investment and momentum strategies on the basis of the volatility of stocks and the business cycle. The tests of this study show that volatile down markets forecast low momentum payoffs. The time-series predictability of momentum is asymmetric, which arises from loser stocks.

This study investigates the relationship between Stock Price Synchronicity and information environment variables in Pakistani equity market by using data of 133 stocks for the period of June 2002 to June 2016. The results indicate that liquidity, book to market ratio, percentage of zero volume days and size have significant impact on stock price synchronicity. The findings of the study suggest that low R-squared stocks are smaller, have less turnover rate and infrequent trading, which makes them less profitable. During global financial crisis, the stocks are more synchronized with the market. This study further suggests that low-stock-price synchronicity is a result of firm-specific variables.

This is a pioneering study on total accrual reversals, i.e. long-term reversals and their role in company performance in an emerging market. This study observes the impact of total accrual reversals on company performance more exclusively. The sample consists of 100 non-financial companies listed on the Pakistan Stock Exchange (PSE). The purpose is to examine the role of long-term reversals in the performance of companies by observing the impact of total accrual reversals for the current period as well as the previous period on the earnings as it is used as a proxy for company performance. The Pooled OLS Robust method with Driscoll-Kraay standard errors is used. The result indicates that total accrual reversals of the previous and current period affect the earnings of companies positively. This result rejects the perception that accrual reversal does not predict the earnings in the long-term perspective. The study concludes that the role of reversals of total accruals in the performance of companies is positive, which is beneficial for growing companies in an emerging market. Hence, companies should increase the total accrual reversals to enhance their performance and attract foreign investors. Keywords: Accrual Reversals, Earnings, Emerging market, Pakistan Stock Exchange JEL Classification: M40, M41

(ProQuest: ... denotes formulae omitted.)1. IntroductionUnderstanding the nature and effects of corporate diversification has long been a fundamental issue in both the management literature and corporate policy. However, there is still no consensus on whether corporate diversification destroys or enhances firm value (Erdorf et al., 2013; Rudolph & Schwetzler, 2013). The literature tends to show that managers seek to benefit themselves at the expense of firm shareholders through their corporate diversification strategies rather than pursing investments that would enhance firm value (see Jensen & Meckling, 1976; Amihud & Lev, 1981 ; Fama & Jensen, 1983; Denis, Denis & Sarin, 1997; Aggarwal & Samwick, 2003). Similarly, most companies do not diversify efficiently, which has an adverse impact on shareholders' wealth (Martin & Sayrak, 2003).Inefficient corporate diversification also gives managers a chance to increase their nonpecuniary benefits, the cost of which is borne by the firm's shareholders (McConnell, McKeon & Xu, 2010). These personal or nonpecuniary benefits include empire building (Jensen, 1988), increased managerial compensation, which depends on firm size (Jensen & Murphy, 1990) and self-preservation, which is achieved by utilizing their personal skills (Shleifer & Vishny, 1989). A number of studies underline this corporate diversification-value destruction stance of agency theory, noting that a significant discounted value is associated with firms that are more diversified (see Lang & Stulz, 1994; Berger & Ofek, 1995; Lins & Servaes, 1999; Denis, Denis & Yost, 2002; Hund, Monk & Tice, 2010; Hoechle et al., 2012). These results have led researchers to assume that diversification destroys firm value - this is known as the agency effect of corporate diversification.However, the information effect of corporate diversification assumes there is not necessarily a conflict of interest between managers and shareholders when it comes to strategic decisions such as corporate diversification (Fox & Hamilton, 1994; Davis, Schoorman & Donaldson, 1997). In case of asymmetric information, shareholders may not be able to gauge managers' ability to make efficient decisions (Gomez-Mejia & Wiseman, 2007) and the latter's diversification decisions may be mistaken for value-decreasing strategies by outside shareholders (Seyhun, 1986). This is the information effect of corporate diversification.Ataullah et al. (2014) compare the effects of corporate diversification (agency and informational) for a sample of British firms. They argue that, when managers implement diversification strategies to benefit themselves rather than to increase firm value, they are less likely to purchase their own firm's shares in the open market (agency effect). Even if managers happen to be pursuing an efficient diversification strategy to enhance the firm's value, the prevailing information asymmetries may keep outside shareholders from perceiving this. In this case, managers are likely to purchase their firm's shares in the open market more actively (information effect).Although there is a vast body of literature on the corporate diversification-value relationship in developed countries, these studies tend to neglect the issue in relation to developing countries. To the best of our knowledge, this is the first attempt to empirically investigate the corporate diversification-value relationship under asymmetric information and insider trading with reference to developing countries. Ataullah et al. (2014) raise two questions in this context. First, do insiders follow strategies for corporate diversification primarily to benefit themselves? Second, do outside investors believe that managers use diversification strategies solely to pursue personal benefits?We conjecture that the results obtained by Ataullah et al. (2014) for the UK market do not necessarily apply to developing countries where financial markets are characterized by weak corporate governance/control and inadequate disclosure, which enhance agency problems, information asymmetries and insider trading. …

(ProQuest: ... denotes formulae omitted.)1. IntroductionThe concept of mean-variance optimization was introduced by Markowitz (1952). Although studies such as Jagannathan and Ma (2003) and Chan, Karceski and Lakonishok (1999) support the use of the standard mean-variance framework for optimal portfolio construction, it has been criticized on a number of fronts. Michaud (1989) terms the concept an "enigma" while Disatnik and Benninga (2007) argue that it yields questionable results. There are two main approaches to dealing with the problems presented by traditional mean-variance optimization. The theoretical approach focuses on the assumptions and notional aspects of the mean-variance framework, while the implementation approach looks at how investors can estimate the expected return vector and covariance matrix of asset classes in order to use the framework successfully.This study examines the literature on the implementation approach to mean-variance optimization and the estimation of the covariance matrix, which is seen as the most troubling aspect of the framework (Ledoit & Wolf, 2003). Elton and Gruber (1973) and DeMiguel, Garlappi and Uppal (2009) reinforce the importance of the covariance estimator in implementing mean-variance optimization successfully.The sample covariance matrix is the conventional measure for estimating the pair-wise covariances of asset classes, based primarily on past covariances. Pafka and Kondor (2004), Michaud (1989), and Jobson and Korkie (1980) have criticized this method of estimating pair-wise covariances. Specifically, it is prone to errors when the number of underlying asset classes is larger than the sample. Michaud (1989) labels this phenomenon "error maximization." Sharpe (1963) proposes a relatively intuitive way of explaining covariances through a common factor - the market factor. Blume (1971), Vasicek (1973) and King (1966) try to improve the estimator by considering the mean-reverting tendency of betas, adjusting their variation and taking into account other factors beyond the single common factor, respectively.Statistical and nontheory-based measures, such as principal component analysis (PCA), can also be used to identify factors relating to historical sample covariances. Elton and Gruber (1973) suggest using average correlation-based covariance estimators. While the literature on covariance estimators is too extensive to survey here, we agree that the standard method of estimating the covariance matrix is prone to either estimation or specification errors. Given the errors and numerical instability of estimators, DeMiguel et al. (2009) conclude empirically that nontheory-based diversification outperforms the more sophisticated asset allocation strategies.The financial literature applies a fundamental principle of statistics to optimize between the estimation error and specification error. Bengtsson and Holst (2002), Chan et al. (1999), Jagannathan and Ma (2003), Ledoit and Wolf (2003, 2004) and Wolf (2004) show empirically that shrinkage estimators and a portfolio of estimators are best suited to covariance estimation. As per the decision theory in statistics, there is an optimal point between the specification error and estimation error. According to Stein (1956), this optimal point can be determined by a weighted average of both estimators.Ledoit and Wolf (2003) suggest using the Bayesian shrinkage approach to optimization in relation to the single-index covariance estimator and sample covariance estimator. This process guarantees to reduce the estimation error in the sample covariance without producing much of a specification error. It results in a shrinkage matrix whereby all the covariances (off-diagonal elements) of the conventional sample matrix are shrunk without changing the diagonal elements. Ledoit and Wolf (2004) shrink the sample covariance toward a constant correlation covariance estimator. Jagannathan and Ma (2003) conceptualize a portfolio of covariance estimators, which challenges the more complex Ledoit and Wolf (2003) estimator, and involves using the equally weighted average of the sample covariance estimator and any other covariance estimator. …

Purpose – The purpose of this paper is to examine the investment behavior of Pakistani stock market participants, specifically with respect to their tendency to exhibit herd behavior. Design/methodology/approach – The study employed two different methodologies suggested by Christie and Huang (1995) and Chang et al. (2000) to test herd formation. Results are based on daily and monthly stock of KSE-100 index for the period 2002-2007. Findings – Results based on daily and monthly stock data from Karachi Stock Exchange indicate the non-existence of herd behavior for the period 2002-2007 and find no support for the rational asset pricing model and investor behavior found inefficient. This study denied proved evidence of herding due to market return asymmetry, high and low trading volume states and asymmetric market volatility. Macroeconomic fundamentals have insignificant role in decision-making process of investor therefore has no impact on herding behavior. However, during liquidity crisis of March 2005, Pakistani stock market exhibit herding behavior due to asymmetry of information among investors, presence of speculator and questionable badla financing-local leverage financing mechanism. Research limitations/implications – In future, this study can be improved by employing stock returns portfolios based on market capitalization or sector wise portfolio returns from KSE-100. Furthermore by identifying those factors that cause market to be overall inefficient and define the pattern of the investor trading activities. Practical implications – For an accurate valuation of assets investors should incorporate the herding factor. Social implications – As the assets are mispriced, investor behavior is uncertain and markets are inefficient, foreign investors should invest with caution, as large numbers of securities are needed to achieve the same level of diversification than in an otherwise normal market. Originality/value – In Karachi Stock Exchange, it is first attempt to uncover the herding behavior. This paper contribute to the body of knowledge by investigating the herding behavior in the emerging markets since most of the previous study concentrate more on the developed markets. Furthermore, the study also analyzed the herding behavior in different economic condition and includes economic variables and examines asymmetric effect. This study presents an integrated model to test herding behavior in Pakistani equity market. Consideration of said behavioral effect in the decision-making process of investor will make the decisions more rational and optimal.

This study is aimed to explore the relationship between country rating and volatility of Karachi Stock Exchange for the period 1999 to 2012. This study employs daily data of country ratings and stock market returns to investigate influence of rating on volatility of market. Univariate Asymmetric GARCH model is used to explore the relationship and results reveal that country rating has a significant role in explaining volatility in Karachi Stock Exchange.

Article history: Received October 1, 2011 Received in Revised form November, 14, 2011 Accepted 15 February 2012 Available online 5 March 2012 The dependence of various stock markets plays a vital role in diversification while selecting securities in an investor’s portfolio. This study examines interdependence among the East Asian stock markets in relation to the Karachi Stock Exchange. Monthly data ranging from 2000 to 2010 is included and tested in this paper. This relationship is tested by using descriptive statistics and correlation matrix. Data stationarity is ensured by Unit Root Test. Evidence from Granger Causality and Impulse Response Test prove no relationship between KSE and stock markets of the East Asian countries while there exists certain level of unidirectional relationship from Japan to China and from Japan to Pakistan. © 2012 Growing Science Ltd. All rights reserved.

This study empirically examines the role of economic freedom, market size and exchange rates in attracting foreign direct investment in south Asian countries for the period 1995-2008 by employing panel data analysis in fixed effect setting. Results clearly indicate the presence of significant positive relationship between economic freedom and FDI inflows in South Asian countries during the period of study. The real effective exchange rate was having negative association with it indicating that depreciation in host country currency negatively influences the inflow of FDI to that country. Therefore, monetary policy should focus on providing stability to currencies of host countries. The model explains approximately 90 percent of total variation in FDI. The paper concludes that South Asian countries should make concerted efforts in devising polices that improve level of economic freedom. In other words, they should provide more investment friendly climate, trade openness, efficient monetary and fiscal policies and freedom from corruption. This can help to attract more foreign direct investment in the South Asian countries.

This paper investigates the effect of bank competition and financial stability on economic growth by examining panel-data from 38 European countries over 2001 to 2017. Bank competition is measured with the Boone indicator, and bank stability with Z-scores and non-performing loan ratios, all at the country level. This study employs a fixed-effect estimator, as well as a system generalized method of moment (GMM) estimator to control unobserved heterogeneity, endogeneity, the dynamic effect of economic growth, and reverse causality in its estimation. Results show that bank stability significantly contributes to economic growth in Europe. Economic growth falls during crisis periods (both the global financial crisis and the local banking crisis), highlighting the importance of a resilient banking system during crisis periods. Moreover, empirical outcomes show that lower banking competition supports economic growth and increases financial stability. This study provides a framework for banks and regulators to boost economic growth through the channel of banking stability.