Impact of China-Pakistan Economic Investment on Volatility of Stock Exchanges in Pakistan and Shanghai

Abstract: This paper aims to analyse the impact of the China-Pakistan Economic Corridor (CPEC) on the volatility of the Pakistan Stock Exchange and Shanghai Stock Exchanges, namely, to analyse the pre and post impact of China investments in Pakistan in the energy sector on the stock exchanges of the respective countries. The methods used include an econometric analysis, namely, the GARCH model, and univariate statistical analysis, from 4th January 2010 to 2nd January 2019. The results present a significant difference in volatilities of the pre and post returns of both indices. Stock prices increased post-CPEC announcement in Pakistan, and there was a growth in the stock market. However, the mean return post-CPEC announcement is lower than Pre-announcement tenure, combined with higher volatility. This shows investor under confidence due to secrecy and non-transparent deals done under CPEC. Face to these results, we recommend a more transparent process in CPEC.

Keywords: China, Pakistan Economic Corridor, Volatility, Mean Reversion, PSX indices

DOI: 10.54941/ahfe1003733

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