A Research Study On The Predictability Of Pakistani Stock Market Return

The paper investigates whether the returns of large industry portfolios in Pakistan can predict stock market returns.The paper examines that diffusion of information is not uniform across all sectors of the market.Large industries or industries whose market Capitalization is high attract the attention of large number of investors which in turn makes these industries informational efficient.Such industries will be able to predict the returns of stock market.In order to verify the information diffusion hypothesis,this paper will conduct an empirical study on the predictability of six industries,such as oil and gas,chemical industry,cement,cable/power,communication technology and textiles.These industries are selected from the relative market value of Pakistan's stock market.In this paper,individual regression analysis and total analysis are carried out in each industry.This study using data from 2001 to 2016 carries on the empirical analysis,and the forecast of stock market returns in 2017,with the 2017 stock market returns,comparing the actual values to test the reliability of the model.The results show that the response of the stock market to information lags behind the industry rate of return,and information will only spread slowly in the market.After the conclusion,this paper gives some advice to investors on investing in Pakistan stock market.