The Lahore Journal
of Business

The Lahore Journal
of Business

Lahore Journal of Business

(HEC recognized journal in “Y” category)

The Lahore Journal of Business is aimed at providing a specialized forum for dissemination of qualitative and quantitative research in various areas of business administration. The LJB invites researchers, policy makers and analysts to submit original theoretical and empirical papers that explore and contribute to the understanding of various areas in the business domain. The Journal aims at bringing together state-of-art research findings, particularly from emerging markets, in various business disciplines including (but not limited to) accounting, banking, management, marketing, finance, investments, human resource management and organizational behavior.

Sagheer Muhammad, Adnan Akhtar and Nasir Sultan

This paper investigates shock dependence and volatility transmission between the crude oil and equity markets, based on crude oil returns and stock index returns for the period 2 January 2009 to 27 January 2014. We employ the bivariate BEKK-GARCH (1, 1) model developed by Engle and Kroner (1995) as well as the Engle and Granger (1987) cointegration and unit root tests. These parameterization tools are more flexible and innovative than other specifications, which often give counter-intuitive results. The results of the cointegration test reject the notion of a long-run relationship between the crude oil market and stock market. The results of the BEKK-GARCH model suggest that shocks and volatility created in the oil market have a significant effect on the Pakistan Stock Exchange. They also reveal bidirectional shock persistence and a unidirectional volatility spillover between crude oil prices and Pakistani equity prices. These empirical findings can help predict price movements in each market efficiently. The empirical results are also important for policymakers involved in shock prevention and for portfolio managers seeking optimal portfolio allocation.