Table of Contents
Economics Research International
Volume 2016, Article ID 3698297, 9 pages
Research Article

What Causes Stock Market Volatility in Pakistan? Evidence from the Field

1Air University, Multan Campus, Multan, Pakistan
2Government Emerson College, Multan, Pakistan
3Oslo Business School, Oslo and Akershus University College of Applied Sciences, Oslo, Norway

Received 10 April 2016; Accepted 5 July 2016

Academic Editor: David E. Giles

Copyright © 2016 Bushra Ghufran et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


We examined the presence of volatility at the Karachi Stock Exchange (recently changed the name to Pakistan Stock Exchange) (KSE) by fitting Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model to 25 years’ index data. We found that the ARCH effects are present in the data indicating the stock market cluster volatility during the period under study. We found persistent high volatility in the stock market and presence of negative leverage effect. Moreover, we tried to identify the factors causing stock market volatility by collecting and analyzing the primary data obtained from 246 individual investors of stock market and 28 brokers listed with KSE. Our results show that investors consider political situation as the most important factor causing turbulence in the stock market. Interviews with the brokers also confirmed this. The second most important factor identified by investors is the herd behavior among investors that results in over- and underpricing of stocks and the overall market shows a volatile behavior. Our findings suggest that individual investor’s behavioral dimensions of involvement, risk attitude, and overconfidence are significantly associated with factors causing market volatility.