In this study, data relating to construction firms of five developing countries are analysed to explore the possibilities of substitution between capital and labour and between skilled and unskilled labour. The study concludes that, in general, both the elasticities are quite low.
Since 1987 many stock markeIs of the world have experienced volatility. This bas been true of many emerging stock markeIs. Our study of daily stock lIllI1'ket data from Pakistan between June 1987 and May 1993 finds the results to be consistent with the impression of great volatility and unpredictability thought to be common in such emerging markets. We used the VAR technique to estimaIe a "presumed" fundamental on stock indices using lagged first differences of natural logs of daily exchange rates and stock indices. We used the Hamilton switching model and associated Walk test to see if such speculative trends were present. We were significantly unable to rule them out. We then tested for ARCH effects, whose presence we failed to Ieject. We then used ARCHgenerated residuals to apply the BDS test of general non-linear structure. We failed to reject the lack of such non-linear structure quite significantly. Thus, the Pakistani stock market during the period of study seems to have exhibited quite complex dynamics, along with apparendy strong trends that may indicate the presence of speculative bubbles. This bas many important implications for Pakistani as well as other emerging markets.
The objective of the study is to examine possible presence of nonlinear speculative bubbles in the Karachi Stock Exchange (KSE). Bubbles are argued to exist when there are substantial deviations of market value from the estimated fundamental values. We estimate a series of fundamental values from a four variable Vector Autoregression Model (VAR) using the main KSE100 index along with measures of world stock prices, the Pakistani exchange rate, and the Pakistani short-term interest rate. Residuals of this estimated fundamental time series are then tested for possible speculative deviations using a Hamilton regime switching test and a rescaled range Hurst coefficient test, with a further test for nonlinearity beyond the ARCH effects using the BDS statistic. For all of these, we reject the null hypotheses of the absence of speculative bubbles and nonlinearities beyond ARCH in these series. While these results suggest the possible presence of such bubbles, we note methodological limits on proving that due to the problem of mis-specified fundamentals. We further discuss some characteristics of the regulatory environment that may make it especially susceptible to such phenomena and may be considered by the policy-makers for the attenuation of speculative and manipulative behaviour. Keywords: Bubble, Pakistan, Stock Market, Regime Switching, Rescaled Range Analysis, Nonlinearity
