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Sectoral integration and investment diversification opportunities: evidence from Colombo Stock Exchange

Awais Ahmed (), Rizwan Ali (), Abdullah Ejaz () and Muhammad Ishfaq Ahmad ()
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Awais Ahmed: University of Lahore, Pakistan
Rizwan Ali: University of Lahore, Pakistan
Abdullah Ejaz: University of Lahore, Pakistan
Muhammad Ishfaq Ahmad: University of Lahore, Pakistan

Entrepreneurship and Sustainability Issues, 2018, vol. 5, issue 3, 514-527

Abstract: This study examined the diversification opportunities within sectors of Colombo Stock Exchange by measuring co-integration among sectors. Those sectors of CSE which are not integrated with others offer good diversification opportunities. Moreover, the study also applies Granger Causality Test to determine which sectors of CSE cause other sectors. This helps an investor informing a diversified portfolio. This study employed daily closing indices of all sectors listed in Colombo Stock Exchange during the period from 1-12-2003 to 31-8-2016. Multivariate Co-integration and Pairwise Co-integration Tests are applied to determine integration among sectors and Granger Causality to determine causal relation among these Sectors of CSE. Stationarity by unit root test revealed that the fourteen sectors are selected for running cointgeration at Level 1. Findings examined that no sector is integrated with other sectors. Thus, CSE provides excellent diversification opportunity to the investors. From an investor point of view, the findings of the study are helpful for a well-diversified portfolio by selecting stocks from those sectors which are not integrated with other sectors and minimize the unsystematic risk. This study significantly contribute the existing literature particularly those investors who want to diversify their portfolios domestically rather internationally.

Keywords: sectoral integration; diversification; portfolio; investment choice; Colombo Stock Exchange (search for similar items in EconPapers)
JEL-codes: F36 G11 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:ssi:jouesi:v:5:y:2018:i:3:p:514-527