Mobeen Ur Rehman

Relationship between developed, European and South Asian stock markets: a multivariate analysis

Purpose The assessment of interdependence between stock markets is an important aspect of international portfolio management. The purpose of this paper is to examine and highlight the diversification potential of South Asian stock markets vis-a-vis developed and European stock markets. Design/methodology/approach The developed stocks markets include USA and UK, and South Asian stock markets include India, Pakistan and Sri Lanka while DJ STOXX 600 index is used to represent the European stock markets. Monthly data are used to examine long-run relationship through ARDL bound testing approach and estimates are obtained using DLOS. Short-term dynamics are captured through vector error correction-based Granger causality. Findings South Asian stock markets are closely linked with each other; similarly, developed/European markets are interlinked. US stock market not only impacts European stock markets, it also Granger cause South Asian stock markets. The findings suggest increase in comovement of South Asian stock markets with the global markets after financial crises of 2007-2008. Practical implications The diversification benefits of South Asian stock markets for international investors are still evident due to their low relationship (in both long and short run) with developed/European stock markets. Originality/value Given the emergence of South Asian stock markets, new insight on their relationship with developed stock markets can provide interesting findings for international portfolio diversification. The South Asian equity markets are an important source of investment because of their immense growth and weak correlation with international markets.

Do Energy Prices Affect U.S. Investor Sentiment

ABSTRACT The current literature has examined the effect of investor sentiment on energy prices, but no study ever has explored the validity of the reverse question. Therefore, this article explore whether energy prices (i.e., crude oil and natural gas prices) affect U.S. investor sentiment, using the methodology of quantile regression. The empirical results document that controlling for a number of U.S. macroeconomic and financial factors, there exists a statistically significant association between oil and natural gas prices and investor sentiment. However, only natural gas prices appear to retain their statistical significance over the majority of quantiles. These findings received robust support under alternative measures of the investor sentiment index.

Is CAPM a Behavioral Model? Estimating Sentiments from Rationalism

ABSTRACT The authors investigate the role of investor sentiment in asset pricing. In particular, they explore whether this investor sentiment has the ability to be predicted by the residuals from the capital asset pricing model (CAPM). The analysis makes use of data for S&P500 firms on a daily basis, spanning the period of 1995–2015, as well as certain panel methodological approaches. The results suggest that the residuals from the CAPM model gain explanatory power for investor sentiment. In other words, investor sentiment is a priced factor. The implication of this finding is that overlooking the role of investor sentiment in classical finance theory could lead to an imperfect picture of describing the asset pricing.

Heterogeneous Panel Analysis among Equity Returns for Portfolio Diversification: Evidence from Emerging and Frontier Asian Equity Markets

Our study investigates the linkage between frontier and emerging equity markets of Asia from January 2000 to December 2016. To deal with heterogeneous panels, we applied pooled mean group framework proposed by Pesaran, Shin, and Smith (2001). Our findings reveal both short and long run relationships among sampled markets thereby supporting the feedback hypothesis. The magnitude of relationship is strong from frontier to emerging equity markets. Results of the study suggest that emerging markets are more integrated with Pakistani equity markets as compared to Sri Lankan equity market suggesting the presence of regional equity market connectedness.