Integration of KSE Stock Index with Other Asian Countries: Empirical Evidence of Measuring Expected Returns on the Basis of Integration

Abstract

The purpose of this paper is to investigate the expected returns of KSE stock index based on integration among stock markets of Japan, China, India, Singapore and Malaysia from 2000 to 2012. Based on return co-movement of these countries’ markets with KSE, expected returns are computed using the model of integration used by Kashif Ali in 2014. Empirical results showed weak relation of each country with KSE stock index returns but significantly influencing its returns in defining future returns on the basis of co-integration. Keeping the criteria of -0.008 to 0.008 as closer to 0 for difference between expected KSE returns computed based on regression analysis and actual results of 2013 and 2014, 70 percent results validated the model. Further we find that Japan is more integrated to KSE stock index returns than other country’s stock markets.