Financial Cointegration of Emerging Economies: Evidence from Bivariate Cointegration and Granger Causality

Vina Javed Khan (), Muhammad Saeed (), Tella Oluwatoba Ibrahim () and Muhammad Rizwan ()
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Vina Javed Khan: Visiting Faculty Member, University of the Punjab, Gujranwala Campus, Pakistan
Muhammad Saeed: Lecturer, Department of Management Sciences, The Superior College, Lahore, Pakistan
Tella Oluwatoba Ibrahim: Research Scholar, Department of Economics, University of Ilorin, Kwara State, Nigeria
Muhammad Rizwan: MPhil Scholar, Department of Economics, University of the Punjab, Lahore, Pakistan
Authors registered in the RePEc Author Service: Muhammad Saeed Meo ()

Empirical Economic Review, 2018, vol. 1, issue 1, 49-70

Abstract: The study at hand examined financial cointegration of emerging economies and explored the diversification opportunities which are available for investors of developed countries. For the long run and causal relationship, Johanson cointegration and Granger Causality test are employed respectively. Analysis revealed evidence of cointegration between the markets of UK and Egypt. Granger Causality test indicated causality and most emerging stock markets were detected to be the followers of established capital markets. Findings implied that investors should consider the cointegration relationship before making investment decisions as it can minimize potential paybacks of prospective international portfolio diversification. Further, policy makers are recommended to consider keep an eye on the stock markets which are strongly cointegrated also having high bilateral trade volume while framing fiscal and monetary policies.

Keywords: Financial Cointegration; Emerging Markets; Johansen; Granger Causality (search for similar items in EconPapers)
JEL-codes: C58 E44 G11 G15 L25 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ris:empecr:0003

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