AN ECONOMETRIC ANALYSIS AMONG DIFFERENT MARKETS OF PAKISTAN USING DCC-GARCH MODEL

Abstract

The purpose of this study was to examine dynamic conditional correlations among stock, oil, and wheat price of Pakistan. By using the DCC GARCH model. The findings of the study indicate that the stock, oil and wheat markets of Pakistan are correlated. Pakistan wheat market remained more volatile followed by stock market and oil market respectively. High wheat support prices, impact of world commodity prices and hoarding of wheat due to speculation results in high volatility. Its volatility was followed by stock market in Pakistan in our results. Political situation and herding behaviour were cited as the major reason for stock market volatility by investors in Pakistan. The correlation between stock and oil price remained negative over most of our study period. Pakistan is oil importing country increase in oil prices increases production cost which ultimately affect the level of production at enterprises and returns of the stock markets negatively. Domestic wheat prices are more influenced by international wheat prices than domestic wheat support prices so high reliance on imported commodities should be avoided by increasing domestic production of wheat. Government should maintain law and order situation to boost confidence of investors.