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


  • Khan, Vina Javed

    () (Visiting Faculty Member, University of the Punjab, Gujranwala Campus, Pakistan)

  • Saeed, Muhammad

    () (Lecturer, Department of Management Sciences, The Superior College, Lahore, Pakistan)

  • Ibrahim, Tella Oluwatoba

    () (Research Scholar, Department of Economics, University of Ilorin, Kwara State, Nigeria)

  • Rizwan, Muhammad

    () (MPhil Scholar, Department of Economics, University of the Punjab, Lahore, Pakistan)


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.

Suggested Citation

  • Khan, Vina Javed & Saeed, Muhammad & Ibrahim, Tella Oluwatoba & Rizwan, Muhammad, 2018. "Financial Cointegration of Emerging Economies: Evidence from Bivariate Cointegration and Granger Causality," Empirical Economic Review, University of Management and Technology, Lahore, vol. 1(1), pages 49-70.
  • Handle: RePEc:ris:empecr:0003

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    More about this item


    Financial Cointegration; Emerging Markets; Johansen; Granger Causality;

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance


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