REPORT ON STOCK MARKET

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In the name of Allah, Most Beneficent, Most Merciful

A TERM REPORT

ON

Submitted to
Mr. M. Sadiq Shahid Malik

Submitted by
Muhammad Iqbal MBC-08-04
Allah Dittah MBC-08-11
Muhammad Saeed MBC-08-26
M. Zuhair Altaf MBC-08-36
Usman Shabir MBC-08-61

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Getting practical knowledge is one of the major

aims of MBA program. Institute of Management Sciences,
City Campus, Bahauddin Zakariya University, Multan has
followed policy of assigning different practical assignments
to its students so a touch of real working environment can
be given to the students apart from classroom studies at
widen their perspective.
Financial Management is one of the core subjects
of MBA (1), which gives an insight into the theoretical
concepts and their application in practical world. Therefore
study of the subject is imperfect without observing in real
working environment.
In this context, respectable, instructor Mr. Sadiq
Shahid Malik has assigned us to study Working of Stock
Market and its application in Pakistan’s stock exchanges.

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Acknowledgement

We have the only pearl of our eyes to admire the

blessing of the compassionate and omnipotent because the
words are bound, knowledge is limited and time is short to
express his dignity. All thanks are due only to Almighty
ALLAH, most gracious, the most merciful, who gave us the
strength and we did this job. Our special praises are for
Holy Prophet Muhammad (SAW) who is, for even
humanity as a whole.
It is a matter of great honor and pleasure for us to
express our ineffable gratitude and profound indebtedness to
our venerable supervisor Mr. Sadiq Shahid Malik for his
kind supervision, valuable suggestions and sympathetic
attitude throughout our research. We are much impressed of
his intellectual activities, inexhaustible energy to steer forth
the student. His sympathetic and sincerest attitude is highly
qualified experience.
This research report includes analysis of Stock
Exchanges of Pakistan. Special Thanks to all of our friends
and all those who have helped us in collecting the data.

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TABLE OF CONTENTS

 Stock
o Type of Stocks
o Stock Derivatives
o Share holder
o Applications
 Stock market
o Market participants
o History of Stock market
o Behavior of Stock market
o Crashes
o Stock market index
o Taxation
 Stock Exchange
o Role of stock exchange
o Ownership
o Future of Stock exchange
 Stock Broker
 Under Writer
 IPO (Initial Public Offering)
 Stock Markets in Pakistan
o Karachi Stock Exchange
o Lahore Stock Exchange
o Islamabad Stock Exchange
 Review of Research Articles
 Conclusion
 Bibliography

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What is Stock?
In business and finance, a share (also referred to as equity share) of stock
means a share of ownership in a corporation (company). In the plural, stocks is
often used as a synonym for shares especially in the United States, but it is less
commonly used that way outside of North America.

In the United Kingdom, South Africa, and Australia, stock can also refer to
completely different financial instruments such as government bonds or, less
commonly, to all kinds of marketable securities.

Types of stocks
Stock typically takes the form of shares of either common stock or preferred
stock. As a unit of ownership, common stock typically carries voting rights that
can be exercised in corporate decisions. Preferred stock differs from common
stock in that it typically does not carry voting rights but is legally entitled to
receive a certain level of dividend payments before any dividends can be issued
to other shareholders. Convertible preferred stock is preferred stock that includes
an option for the holder to convert the preferred shares into a fixed number of
common shares, usually anytime after a predetermined date. Shares of such
stock are called "convertible preferred shares" (or "convertible preference
shares" in the UK)

Although there is a great deal of commonality between the stocks of different

companies, each new equity issue can have legal clauses attached to it that
make it dynamically different from the more general cases. Some shares of
common stock may be issued without the typical voting rights being included, for
instance, or some shares may have special rights unique to them and issued
only to certain parties. Note that not all equity shares are the same.

Stock derivatives

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A derivative is any financial asset whose value is derived from the value of some
other “underlying” asset. A stock derivative is any financial instrument which has
a value that is dependent on the price of the underlying stock. Futures and
options are the main types of derivatives on stocks. The underlying security may
be a stock index or an individual firm's stock, e.g. single-stock futures.

Stock futures are contracts where the buyer is long, i.e., takes on the obligation
to buy on the contract maturity date, and the seller is short, i.e., takes on the
obligation to sell. Stock index futures are generally not delivered in the usual
manner, but by cash settlement.

A stock option is a class of option. Specifically, a call option is the right (not
obligation) to buy stock in the future at a fixed price and a put option is the right
(not obligation) to sell stock in the future at a fixed price. Thus, the value of a
stock option changes in reaction to the underlying stock of which it is a derivative.
The most popular method of valuing stock options is the Black Scholes model.
Apart from call options granted to employees, most stock options are
transferable.

Shareholder
A shareholder (or stockholder) is an individual or company (including a
corporation) that legally owns one or more shares of stock in a joint stock
company. Companies listed at the stock market are expected to strive to
enhance shareholder value.

Shareholders are granted special privileges depending on the class of stock,

including the right to vote (usually one vote per share owned) on matters such as
elections to the board of directors, the right to share in distributions of the
company's income, the right to purchase new shares issued by the company, and
the right to a company's assets during a liquidation of the company. However,
shareholder's rights to a company's assets are subordinate to the rights of the
company's creditors.

Shareholders are considered by some to be a partial subset of stakeholders,

which may include anyone who has a direct or indirect equity interest in the
business entity or someone with even a non-pecuniary interest in a non-profit
organization. Thus it might be common to call volunteer contributors to an
association stakeholders, even though they are not shareholders.

Although directors and officers of a company are bound by fiduciary duties to act
in the best interest of the shareholders, the shareholders themselves normally do
not have such duties towards each other.

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However, in a few unusual cases, some courts have been willing to imply such a
duty between shareholders. For example, in California, USA, majority
shareholders of closely held corporations have a duty to not destroy the value of
the shares held by minority shareholders.

The largest shareholders (in terms of percentages of companies owned) are

often mutual funds, and especially passively managed exchange-traded funds.

Application
The owners of a company may want additional capital to invest in new projects
within the company. They may also simply wish to reduce their holding, freeing
up capital for their own private use.

By selling shares they can sell part or all of the company to many part-owners.
The purchase of one share entitles the owner of that share to literally share in the
ownership of the company, a fraction of the decision-making power, and
potentially a fraction of the profits, which the company may issue as dividends.

In the common case of a publicly traded corporation, where there may be

thousands of shareholders, it is impractical to have all of them making the daily
decisions required to run a company. Thus, the shareholders will use their shares
as votes in the election of members of the board of directors of the company.

In a typical case, each share constitutes one vote. Corporations may, however,
issue different classes of shares, which may have different voting rights. Owning
the majority of the shares allows other shareholders to be out-voted - effective
control rests with the majority shareholder (or shareholders acting in concert). In
this way the original owners of the company often still have control of the
company.

Shareholder rights
Although ownership of 50% of shares does result in 50% ownership of a
company, it does not give the shareholder the right to use a company's building,
equipment, materials, or other property. This is because the company is
considered a legal person, thus it owns all its assets itself. This is important in
areas such as insurance, which must be in the name of the company and not the
main shareholder.

In most countries, including the United States, boards of directors and company
managers have a fiduciary responsibility to run the company in the interests of its
stockholders.

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Even though the board of directors runs the company, the shareholder has some
impact on the company's policy, as the shareholders elect the board of directors.
Each shareholder typically has a percentage of votes equal to the percentage of
shares he or she owns. So as long as the shareholders agree that the
management (agent) are performing poorly they can elect a new board of
directors which can then hire a new management team. In practice, however,
genuinely contested board elections are rare. Board candidates are usually
nominated by insiders or by the board of the directors themselves, and a
considerable amount of stock is held and voted by insiders.

Owning shares does not mean responsibility for liabilities. If a company goes
broke and has to default on loans, the shareholders are not liable in any way.
However, all money obtained by converting assets into cash will be used to repay
loans and other debts first, so that shareholders cannot receive any money
unless and until creditors have been paid (most often the shareholders end up
with nothing).

Means of financing
Financing a company through the sale of stock in a company is known as equity
financing. Alternatively, debt financing (for example issuing bonds) can be done
to avoid giving up shares of ownership of the company. Unofficial financing
known as trade financing usually provides the major part of a company's working
capital (day-to-day operational needs).

Trading
A stock exchange is an organization that provides a marketplace for either
physical or virtual trading shares, bonds and warrants and other financial
products where investors (represented by stock brokers) may buy and sell
shares of a wide range of companies. A company will usually list its shares by
meeting and maintaining the listing requirements of a particular stock exchange.
In the United States, through the inter-market quotation system, stocks listed on
one exchange can also be bought or sold on several other exchanges, including
relatively new so-called ECNs (Electronic Communication Networks like
Archipelago or Instinet).

In the USA stocks used to be broadly grouped into NYSE-listed and NASDAQ-
listed stocks. Until a few years ago there was a law that NYSE listed stocks were
not allowed to be listed on the NASDAQ or vice versa.

Many large non-U.S companies choose to list on a U.S. exchange as well as an

exchange in their home country in order to broaden their investor base. These
companies have then to ship a certain number of shares to a bank in the US (a
certain percentage of their principal) and put it in the safe of the bank. Then the

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bank where they deposited the shares can issue a certain number of so-called
American Depositary Shares, short ADS (singular). If someone buys now a
certain number of ADSs the bank where the shares are deposited issues an
American Depository Receipt (ADR) for the buyer of the ADSs.

Likewise, many large U.S. companies list themselves at foreign exchanges to

raise capital abroad.

Arbitrage trading
Although it makes sense for some companies to raise capital by offering stock on
more than one exchange, a keen investor with access to information about such
discrepancies could invest in expectation of their eventual convergence, known
as an arbitrage trade. In today's era of electronic trading, these discrepancies, if
they exist, are both shorter-lived and more quickly acted upon. As such, arbitrage
opportunities disappear quickly due to the efficient nature of the market.

Buying
There are various methods of buying and financing stocks. The most common
means is through a stock broker. Whether they are a full service or discount
broker, they arrange the transfer of stock from a seller to a buyer. Most trades
are actually done through brokers listed with a stock exchange, such as the New
York Stock Exchange.

There are many different stock brokers from which to choose, such as full service
brokers or discount brokers. The full service brokers usually charge more per
trade, but give investment advice or more personal service; the discount brokers
offer little or no investment advice but charge less for trades. Another type of
broker would be a bank or credit union that may have a deal set up with either a
full service or discount broker.

There are other ways of buying stock besides through a broker. One way is
directly from the company itself. If at least one share is owned, most companies
will allow the purchase of shares directly from the company through their investor
relations departments. However, the initial share of stock in the company will
have to be obtained through a regular stock broker. Another way to buy stock in
companies is through Direct Public Offerings which are usually sold by the
company itself. A direct public offering is an initial public offering in which the
stock is purchased directly from the company, usually without the aid of brokers.

When it comes to financing a purchase of stocks there are two ways: purchasing
stock with money that is currently in the buyer's ownership, or by buying stock on
margin. Buying stock on margin means buying stock with money borrowed
against the stocks in the same account. These stocks, or collateral, guarantee

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that the buyer can repay the loan; otherwise, the stockbroker has the right to sell
the stock (collateral) to repay the borrowed money. He can sell if the share price
drops below the margin requirement, at least 50% of the value of the stocks in
the account. Buying on margin works the same way as borrowing money to buy a
car or a house, using the car or house as collateral. Moreover, borrowing is not
free; the broker usually charges 8-10% interest.

Selling
Selling stock is procedurally similar to buying stock. Generally, the investor wants
to buy low and sell high, if not in that order (short selling); although a number of
reasons may induce an investor to sell at a loss, e.g., to avoid further loss.

As with buying a stock, there is a transaction fee for the broker's efforts in
arranging the transfer of stock from a seller to a buyer. This fee can be high or
low depending on which type of brokerage, full service or discount, handles the
transaction.

After the transaction has been made, the seller is then entitled to all of the
money. An important part of selling is keeping track of the earnings. Importantly,
on selling the stock, in jurisdictions that have them, capital gains taxes will have
to be paid on the additional proceeds, if any, that are in excess of the cost basis.

Stock Market
A stock market, or equity market, is a private or public market for the trading of
company stock and derivatives of company stock at an agreed price; these are
securities listed on a stock exchange as well as those only traded privately.

Other Definitions of Stock Market

• A market in which shares of stock are bought and sold.

• A general term referring to the organized trading of securities in the
various market exchanges and the over the counter (OTC) market.
• The organized trading of stocks, bonds, or other securities, or the place
where such trading occurs.
• An institution that facilitates the buying and selling of stocks.
• A market for the buying and selling of stocks, such as the New York Stock
Exchange.

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• A location, referred to as ‘market’, where stocks are bought and sold.

These can be private or public.
• The market for trading equities.
• The display that represents the stock market that railroad shares are
traded on. This is a crude representation of a real stock market.
• Is where a company’s shares are traded. The UK stock market is in
London.
• Is a market for the trading of publicly held company stocks or shares and
associated financial instruments (including stock options, convertibles and
stock index futures). Traditionally such markets were open-outcry where
trading occurred on the floor of an exchange.
• An infrastructure providing services for raising capital and dealing in
shares.

Stock exchange: an exchange where security trading is conducted by

professional stockbrokers.

Size of world stock market

The size of the world stock market is estimated at about $36.6 trillion US at the
beginning of October 2008 The world derivatives market has been estimated at
about $480 trillion face or nominal value, 12 times the size of the entire world
economy. It must be noted though that the value of the derivatives market,
because it is stated in terms of notional values, cannot be directly compared to a
stock or a fixed income security, which traditionally refers to an actual value.
Many such relatively illiquid securities are valued as marked to model, rather
than an actual market price.

The stocks are listed and traded on stock exchanges which are entities a
corporation or mutual organization specialized in the business of bringing buyers
and sellers of the organizations to a listing of stocks and securities together. The
stock market in the United States includes the trading of all securities listed on
the NYSE, the NASDAQ, the Amex, as well as on the many regional exchanges,
e.g. OTCBB and Pink Sheets. European examples of stock exchanges include
the London Stock Exchange.

Participants in the stock market range from small individual stock investors to
large hedge fund traders, who can be based anywhere. Their orders usually end
up with a professional at a stock exchange, who executes the order.

Some exchanges are physical locations where transactions are carried out on a
trading floor, by a method known as open outcry. This type of auction is used in
stock exchanges and commodity exchanges where traders may enter "verbal"
bids and offers simultaneously. The other type of stock exchange is a virtual kind,

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composed of a network of computers where trades are made electronically via

traders.

Actual trades are based on an auction market paradigm where a potential buyer
bids a specific price for a stock and a potential seller asks a specific price for the
stock. (Buying or selling at market means you will accept any ask price or bid
price for the stock, respectively.) When the bid and ask prices match, a sale
takes place on a first come first served basis if there are multiple bidders or
askers at a given price.

The purpose of a stock exchange is to facilitate the exchange of securities

between buyers and sellers, thus providing a marketplace (virtual or real). The
exchanges provide real-time trading information on the listed securities,
facilitating price discovery.

The New York Stock Exchange is a physical exchange, also referred to as a

listed exchange — only stocks listed with the exchange may be traded. Orders
enter by way of exchange members and flow down to a floor broker, who goes to
the floor trading post specialist for that stock to trade the order. The specialist's
job is to match buy and sell orders using open outcry. If a spread exists, no trade
immediately takes place--in this case the specialist should use his/her own
resources (money or stock) to close the difference after his/her judged time.
Once a trade has been made the details are reported on the "tape" and sent
back to the brokerage firm, which then notifies the investor who placed the order.
Although there is a significant amount of human contact in this process,
computers play an important role, especially for so-called "program trading".

The NASDAQ is a virtual listed exchange, where all of the trading is done over a
computer network. The process is similar to the New York Stock Exchange.
However, buyers and sellers are electronically matched. One or more NASDAQ
market makers will always provide a bid and ask price at which they will always
purchase or sell 'their' stock

Market participants
Many years ago, worldwide, buyers and sellers were individual investors, such as
wealthy businessmen, with long family histories (and emotional ties) to particular
corporations. Over time, markets have become more "institutionalized"; buyers
and sellers are largely institutions (e.g., pension funds, insurance companies,
mutual funds, index funds, exchange traded funds, hedge funds, investor groups,
banks and various other financial institutions). The rise of the institutional investor
has brought with it some improvements in market operations. Thus, the
government was responsible for "fixed" (and exorbitant) fees being markedly

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reduced for the 'small' investor, but only after the large institutions had managed
to break the brokers' solid front on fees they then went to 'negotiated' fees, but
only for large institutions.

However, corporate governance (at least in the West) has been very much
adversely affected by the rise of (largely 'absentee') institutional 'owners.

History of stock market

Historian Fernand Braudel suggests that in Cairo in the 11th century, Muslim and
Jewish merchants had already set up every form of trade association and had
knowledge of many methods of credit and payment, disproving the belief that
these were originally invented later by Italians. In 12th century France the
courratiers de change were concerned with managing and regulating the debts of
agricultural communities on behalf of the banks. Because these men also traded
with debts, they could be called the first brokers. A common misbelief is that in
late 13th century Bruges commodity traders gathered inside the house of a man
called Van der Beurze, and in 1309 they became the "Brugse Beurse",
institutionalizing what had been, until then, an informal meeting, but actually, the
family Van der Beurze had a building in Antwerp where those gatherings
occurred ; the Van der Beurze had Antwerp, as most of the merchants of that
period, as their primary place for trading. The idea quickly spread around
Flanders and neighboring counties and "Beurzen" soon opened in Ghent and
Amsterdam. There are stock markets in virtually every part of the world at this
moment. Some of the important stock markets are United States.

In the middle of the 13th century, Venetian bankers began to trade in government
securities. In 1351 the Venetian government outlawed spreading rumors intended
to lower the price of government funds. Bankers in Pisa, Verona, Genoa and
Florence also began trading in government securities during the 14th century.
This was only possible because these were independent city states not ruled by
a duke but a council of influential citizens. The Dutch later started joint stock
companies, which let shareholders invest in business ventures and get a share of
their profits - or losses. In 1602, the Dutch East India Company issued the first

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shares on the Amsterdam Stock Exchange. It was the first company to issue
stocks and bonds.

The Amsterdam Stock Exchange (or Amsterdam Beurs) is also said to have been
the first stock exchange to introduce continuous trade in the early 17th century.
The Dutch "pioneered short selling, option trading, debt-equity swaps, merchant
banking, unit trusts and other speculative instruments, much as we know them"
(Murray Sayle, "Japan Goes Dutch", London Review of Books XXIII.7, April 5,
2001). There are now stock markets in virtually every developed and most
developing economies, with the world's biggest markets being in the United
States, Canada, China (Hongkong), India, UK, Germany, France and Japan.

Function and purpose of stock market

The stock market is one of the most important sources for companies to raise
money. This allows businesses to be publicly traded, or raise additional capital
for expansion by selling shares of ownership of the company in a public market.
The liquidity that an exchange provides affords investors the ability to quickly and
easily sell securities. This is an attractive feature of investing in stocks, compared
to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part
of the dynamics of economic activity, and can influence or be an indicator of
social mood. An economy where the stock market is on the rise is considered to
be an up coming economy. In fact, the stock market is often considered the
primary indicator of a country's economic strength and development. Rising
share prices, for instance, tend to be associated with increased business
investment and vice versa. Share prices also affect the wealth of households and
their consumption. Therefore, central banks tend to keep an eye on the control
and behavior of the stock market and, in general, on the smooth operation of
financial system functions.

Exchanges also act as the clearinghouse for each transaction, meaning that they
collect and deliver the shares, and guarantee payment to the seller of a security.
This eliminates the risk to an individual buyer or seller that the counterparty could
default on the transaction.

The smooth functioning of all these activities facilitates economic growth in that
lower costs and enterprise risks promote the production of goods and services as
well as employment. In this way the financial system contributes to increased
prosperity

Relation of the stock market to the modern financial

system

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The financial system in most western countries has undergone a remarkable

transformation. One feature of this development is disintermediation. A portion of
the funds involved in saving and financing flows directly to the financial markets
instead of being routed via the traditional bank lending and deposit operations.
The general public's heightened interest in investing in the stock market, either
directly or through mutual funds, has been an important component of this
process. Statistics show that in recent decades shares have made up an
increasingly large proportion of households' financial assets in many countries. In
the 1970s, in Sweden, deposit accounts and other very liquid assets with little
risk made up almost 60 percent of households' financial wealth, compared to less
than 20 percent in the 2000s. The major part of this adjustment in financial
portfolios has gone directly to shares but a good deal now takes the form of
various kinds of institutional investment for groups of individuals, e.g., pension
funds, mutual funds, hedge funds, insurance investment of premiums, etc.

The trend towards forms of saving with a higher risk has been accentuated by
new rules for most funds and insurance, permitting a higher proportion of shares
to bonds. Similar tendencies are to be found in other industrialized countries. In
all developed economic systems, such as the European Union, the United
States, Japan and other developed nations, the trend has been the same: saving
has moved away from traditional (government insured) bank deposits to more
risky securities of one sort or another.

The stock market, individual investors, and financial

risk
Riskier long-term saving requires that an individual possess the ability to manage
the associated increased risks. Stock prices fluctuate widely, in marked contrast
to the stability of (government insured) bank deposits or bonds. This is something
that could affect not only the individual investor or household, but also the
economy on a large scale. The following deals with some of the risks of the
financial sector in general and the stock market in particular. This is certainly
more important now that so many newcomers have entered the stock market, or
have acquired other 'risky' investments (such as 'investment' property, i.e., real
estate and collectables).

With each passing year, the noise level in the stock market rises. Television
commentators, financial writers, analysts, and market strategists are all
overtaking each other to get investors' attention. At the same time, individual
investors, immersed in chat rooms and message boards, are exchanging
questionable and often misleading tips. Yet, despite all this available information,
investors find it increasingly difficult to profit. Stock prices skyrocket with little
reason, then plummet just as quickly, and people who have turned to investing
for their children's education and their own retirement become frightened.
Sometimes there appears to be no rhyme or reason to the market, only folly.

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The behavior of the stock market

From experience we know that investors may temporarily pull financial prices
away from their long term trend level. Over-reactions may occur—so that
excessive optimism (euphoria) may drive prices unduly high or excessive
pessimism may drive prices unduly low

According to the efficient market hypothesis (EMH), only changes in fundamental

factors, such as profits or dividends, ought to affect share prices. (But this largely
theoretic academic viewpoint also predicts that little or no trading should take
place—contrary to fact—since prices are already at or near equilibrium, having
priced in all public knowledge.) But the efficient-market hypothesis is sorely
tested by such events as the stock market crash in 1987, when the Dow Jones
index plummeted 22.6 percent—the largest-ever one-day fall in the United
States. This event demonstrated that share prices can fall dramatically even
though, to this day, it is impossible to fix a definite cause: a thorough search
failed to detect any specific or unexpected development that might account for
the crash. It also seems to be the case more generally that many price
movements are not occasioned by new information; a study of the fifty largest
one-day share price movements in the United States in the post-war period
confirms this. Moreover, while the EMH predicts that all price movement (in the
absence of change in fundamental information) is random (i.e., non-trending),
many studies have shown a marked tendency for the stock market to trend over
time periods of weeks or longer.

Various explanations for large price movements have been promulgated. For
instance, some research has shown that changes in estimated risk, and the use
of certain strategies, such as stop-loss limits and Value at Risk limits,
theoretically could cause financial markets to overreact.

Other research has shown that psychological factors may result in exaggerated
stock price movements. Psychological research has demonstrated that people
are predisposed to 'seeing' patterns, and often will perceive a pattern in what is,
in fact, just noise. (Something like seeing familiar shapes in clouds or ink blots.)
In the present context this means that a succession of good news items about a
company may lead investors to overreact positively (unjustifiably driving the price
up). A period of good returns also boosts the investor's self-confidence, reducing
his (psychological) risk threshold.

The stock market, as any other business, is quite unforgiving of amateurs.

Inexperienced investors rarely get the assistance and support they need. In the
period running up to the recent Nasdaq crash, less than 1 percent of the analyst's
recommendations had been to sell (and even during the 2000 - 2002 crash, the
average did not rise above 5%). The media amplified the general euphoria, with
reports of rapidly rising share prices and the notion that large sums of money
could be quickly earned in the so-called new economy stock market.

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Irrational behavior
Sometimes the market tends to react irrationally to economic news, even if that
news has no real affect on the technical value of securities itself. Therefore, the
stock market can be swayed tremendously in either direction by press releases,
rumors, euphoria and mass panic.

Over the short-term, stocks and other securities can be battered or buoyed by
any number of fast market-changing events, making the stock market difficult to
predict. Emotions can drive prices up and down. People may not be as rational
as they think. Behaviorists argue that investors often behave irrationally when
making investment decisions thereby incorrectly pricing securities, which causes
market inefficiencies, which, in turn, are opportunities to make money

Crashes
A stock market crash is often defined as a sharp dip in share prices of equities
listed on the stock exchanges. In parallel with various economic factors, a reason
for stock market crashes is also due to panic. Often, stock market crashes end
speculative economic bubbles.

There have been famous stock market crashes that have ended in the loss of
billions of dollars and wealth destruction on a massive scale. An increasing
number of people are involved in the stock market, especially since the social
security and retirement plans are being increasingly privatized and linked to
stocks and bonds and other elements of the market. There have been a number
of famous stock market crashes like the Wall Street Crash of 1929, the stock
market crash of 1973–4, the Black Monday of 1987, the Dot-com bubble of 2000.
One of the most famous stock market crashes started October 24, 1929 on Black
Thursday. The Dow Jones Industrial lost 50% during this stock market crash. It
was the beginning of the Great Depression.

Another famous crash took place on October 19, 1987 – Black Monday. On
Black Monday itself, the Dow Jones fell by 22.6% after completing a 5 year
continuous rise in share prices. This event not only shook the USA, but quickly
spread across the world. Thus, by the end of October, stock exchanges in
Australia lost 41.8%, in Canada lost 22.5%, in Hong Kong lost 45.8%, and in
Great Britain lost 26.4%. The names “Black Monday” and “Black Tuesday” are
also used for October 28-29, 1929, which followed Terrible Thursday--the starting
day of the stock market crash in 1929. The crash in 1987 raised some puzzles-–
main news and events did not predict the catastrophe and visible reasons for the
collapse were not identified. This event raised questions about many important
assumptions of modern economics, namely, the theory of rational human
conduct, the theory of market equilibrium and the hypothesis of market efficiency.
For some time after the crash, trading in stock exchanges worldwide was halted,

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since the exchange computers did not perform well owing to enormous quantity
of trades being received at one time. This halt in trading allowed the Federal
Reserve system and central banks of other countries to take measures to control
the spreading of worldwide financial crisis.

In the United States the SEC introduced several new measures of control into the
stock market in an attempt to prevent a re-occurrence of the events of Black
Monday. Computer systems were upgraded in the stock exchanges to handle
larger trading volumes in a more accurate and controlled manner. The SEC
modified the margin requirements in an attempt to lower the volatility of common
stocks, stock options and the futures market. The New York Stock Exchange and
the Chicago Mercantile Exchange introduced the concept of a circuit breaker.

Stock market index

The movements of the prices in a market or section of a market are captured in
price indices called stock market indices, of which there are many, e.g., the S&P,
the FTSE and the Euronext indices. Such indices are usually market
capitalization weighted, with the weights reflecting the contribution of the stock to
the index. The constituents of the index are reviewed frequently to
include/exclude stocks in order to reflect the changing business environment.

Investment strategies
One of the many things people always want to know about the stock market is,
"How do I make money investing?" There are many different approaches; two
basic methods are classified as either fundamental analysis or technical analysis.
Fundamental analysis refers to analyzing companies by their financial statements
found in SEC Filings, business trends, general economic conditions, etc.
Technical analysis studies price actions in markets through the use of charts and
quantitative techniques to attempt to forecast price trends regardless of the
company's financial prospects. One example of a technical strategy is the Trend
following method, used by John W. Henry and Ed Seykota, which uses price
patterns, utilizes strict money management and is also rooted in risk control and
diversification.

Additionally, many choose to invest via the index method. In this method, one
holds a weighted or unweighted portfolio consisting of the entire stock market or
some segment of the stock market (such as the S&P 500 or Wilshire 5000). The
principal aim of this strategy is to maximize diversification, minimize taxes from
too frequent trading, and ride the general trend of the stock market (which, in the
U.S., has averaged nearly 10%/year, compounded annually, since World War II).

Taxation

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According to much national or state legislation, a large array of fiscal obligations

is taxed for capital gains. Taxes are charged by the state over the transactions,
dividends and capital gains on the stock market, in particular in the stock
exchanges. However, these fiscal obligations may vary from jurisdiction to
jurisdiction because, among other reasons, it could be assumed that taxation is
already incorporated into the stock price through the different taxes companies
pay to the state, or that tax free stock market operations are useful to boost
economic growth.

Stock exchange
A stock exchange, securities exchange or (in Europe) bourse is a corporation or
mutual organization which provides "trading" facilities for stock brokers and
traders, to trade stocks and other securities. Stock exchanges also provide
facilities for the issue and redemption of securities as well as other financial
instruments and capital events including the payment of income and dividends.
The securities traded on a stock exchange include: shares issued by companies,
unit trusts and other pooled investment products and bonds. To be able to trade a
security on a certain stock exchange, it has to be listed there. Usually there is a
central location at least for recordkeeping, but trade is less and less linked to
such a physical place, as modern markets are electronic networks, which gives
them advantages of speed and cost of transactions. Trade on an exchange is by
members only. The initial offering of stocks and bonds to investors is by definition
done in the primary market and subsequent trading is done in the secondary
market. A stock exchange is often the most important component of a stock
market. Supply and demand in stock markets are driven by various factors which,
as in all free markets, affect the price of stocks (see stock valuation).

There is usually no compulsion to issue stock via the stock exchange itself, nor
must stock be subsequently traded on the exchange. Such trading is said to be
off exchange or over-the-counter. This is the usual way that bonds are traded.
Increasingly, stock exchanges are part of a global market for securities.

The role of stock exchanges

Stock exchanges have multiple roles in the economy, this may include the
following:

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Raising capital for businesses

The Stock Exchange provides companies with the facility to raise capital for
expansion through selling shares to the investing public.

Mobilizing savings for investment

When people draw their savings and invest in shares, it leads to a more rational
allocation of resources because funds, which could have been consumed, or
kept in idle deposits with banks, are mobilized and redirected to promote
business activity with benefits for several economic sectors such as agriculture,
commerce and industry, resulting in stronger economic growth and higher
productivity levels and firms.

Facilitating company growth

Companies view acquisitions as an opportunity to expand product lines, increase
distribution channels, hedge against volatility, increase its market share, or
acquire other necessary business assets. A takeover bid or a merger agreement
through the stock market is one of the simplest and most common ways for a
company to grow by acquisition or fusion.

Redistribution of wealth
Stocks exchanges do not exist to redistribute wealth. However, both casual and
professional stock investors, through dividends and stock price increases that
may result in capital gains, will share in the wealth of profitable businesses.

Corporate governance
By having a wide and varied scope of owners, companies generally tend to
improve on their management standards and efficiency in order to satisfy the
demands of these shareholders and the more stringent rules for public
corporations imposed by public stock exchanges and the government.
Consequently, it is alleged that public companies (companies that are owned by
shareholders who are members of the general public and trade shares on public
exchanges) tend to have better management records than privately-held
companies (those companies where shares are not publicly traded, often owned
by the company founders and/or their families and heirs, or otherwise by a small
group of investors).

However, some well-documented cases are known where it is alleged that there
has been considerable slippage in corporate governance on the part of some

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public companies. The dot-com bubble in the early 2000s, and the subprime
mortgage crisis in 2007-08, are classical examples of corporate mismanagement.
Companies like Pets.com (2000), Enron Corporation (2001), One.Tel (2001),
Sunbeam (2001), Webvan (2001), Adelphia (2002), MCI WorldCom (2002),
Parmalat (2003), Fannie Mae (2008), Freddie Mac (2008), Lehman Brothers
(2008), were among the most widely scrutinized by the media.

Creating investment opportunities for small investors

As opposed to other businesses that require huge capital outlay, investing in
shares is open to both the large and small stock investors because a person
buys the number of shares they can afford. Therefore the Stock Exchange
provides the opportunity for small investors to own shares of the same
companies as large investors.

Government capital-raising for development projects

Governments at various levels may decide to borrow money in order to finance
infrastructure projects such as sewage and water treatment works or housing
estates by selling another category of securities known as bonds. These bonds
can be raised through the Stock Exchange whereby members of the public buy
them, thus loaning money to the government. The issuance of such bonds can
obviate the need to directly tax the citizens in order to finance development,
although by securing such bonds with the full faith and credit of the government
instead of with collateral, the result is that the government must tax the citizens
or otherwise raise additional funds to make any regular coupon payments and
refund the principal when the bonds mature.

Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on market
forces. Share prices tend to rise or remain stable when companies and the
economy in general show signs of stability and growth. An economic recession,
depression, or financial crisis could eventually lead to a stock market crash.
Therefore the movement of share prices and in general of the stock indexes can
be an indicator of the general trend in the economy.

Listing requirements by stock exchanges

Listing requirements are the set of conditions imposed by a given stock
exchange upon companies that want to be listed on that exchange. Such
conditions sometimes include minimum number of shares outstanding, minimum
market capitalization, and minimum annual income.

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Companies have to meet the requirements of the exchange in order to have their
stocks and shares listed and traded there, but requirements vary by stock
exchange:

• NASDAQ Stock Exchange: To be listed on the NASDAQ a company

must have issued at least 1.25 million shares of stock worth at least $70
million and must have earned more than $11 million over the last three
years.

• New York Stock Exchange: To be listed on the New York Stock

Exchange (NYSE), for example, a company must have issued at least a
million shares of stock worth $100 million and must have earned more
than $10 million over the last three years.

Ownership
Stock exchanges originated as mutual organizations, owned by its member stock
brokers. There has been a recent trend for stock exchanges to demutualize,
where the members sell their shares in an initial public offering. In this way the
mutual organization becomes a corporation, with shares that are listed on a stock
exchange. Examples are Australian Securities Exchange (1998), Euronext
(merged with New York Stock Exchange), NASDAQ (2002), the New York Stock
Exchange (2005), Bolsas y Mercados Españoles, and the São Paulo Stock
Exchange (2007). The Shenzhen and Shanghai stock exchanges can been
characterized as quasi-state institutions insofar as they were created by
government bodies in China and their leading personnel are directly appointed by
the China Securities Regulatory Commission.

The future of stock exchanges

The future of stock trading appears to be electronic, as competition is continually
growing between the remaining traditional New York Stock Exchange specialist
system against the relatively new, all Electronic Communications Networks, or
ECNs. ECNs point to their speedy execution of large block trades, while
specialist system proponents cite the role of specialists in maintaining orderly
markets, especially under extraordinary conditions or for special types of orders.

The ECNs contend that an array of special interests profit at the expense of
investors in even the most mundane exchange-directed trades. Machine-based
systems, they argue, are much more efficient, because they speed up the
execution mechanism and eliminate the need to deal with an intermediary.

Historically, the 'market' (which, as noted, encompasses the totality of stock

trading on all exchanges) has been slow to respond to technological innovation,

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thus allowing growing pure speculation to continue. Conversion to all-electronic

trading could erode/eliminate the trading profits of floor specialists and the
NYSE's "upstairs traders", who, like in September and October 2008, earned
billions of dollars selling shares they did not have, and days later buying the
same amount of shares, but maybe 15 % cheaper, so these shares could be
handed to their buyers, therebuy making the market fall deeply.

William Lupien, founder of the Instinet trading system and the OptiMark system,
has been quoted as saying "I'd definitely say the ECNs are winning... Things
happen awfully fast once you reach the tipping point. We're now at the tipping
point."

One example of improved efficiency of ECNs is the prevention of front running,

by which manual Wall Street traders use knowledge of a customer's incoming
order to place their own orders so as to benefit from the perceived change to
market direction that the introduction of a large order will cause. By executing
large trades at lightning speed without manual intervention, ECNs make
impossible this illegal practice, for which several NYSE floor brokers were
investigated and severely fined in recent years. Under the specialist system,
when the market sees a large trade in a name, other buyers are immediately able
to look to see how big the trader is in the name, and make inferences about why
s/he is selling or buying. All traders who are quick enough are able to use that
information to anticipate price movements.

ECNs have changed ordinary stock transaction processing (like brokerage

services before them) into a commodity-type business. ECNs could regulate the
fairness of initial public offerings (IPOs), oversee Hambrecht's OpenIPO process,
or measure the effectiveness of securities research and use transaction fees to
subsidize small- and mid-cap research efforts.

Some[who?], however, believe the answer will be some combination of the best
of technology and "upstairs trading" — in other words, a hybrid model.

Trading 25,000 shares of General Electric stock (recent[when?] quote: $34.76;

recent[when?] volume: 44,760,300) would be a relatively simple e-commerce
transaction; trading 100 shares of Berkshire Hathaway Class A stock (recent
quote: $139,700.00; recent volume: 850) may never be. The choice of system
should be clear (but always that of the trader), based on the characteristics of the
security to be traded.

Even with ECNs forming an important part of a national market system,

opportunities presumably remain to profit from the spread between the bid and
offer price. That is especially true for investment managers that direct huge
trading volume, and own a stake in an ECN or specialist firm. For example, in its

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individual stock-brokerage accounts, "Fidelity Investments runs 29% of its

undesignated orders in NYSE-listed stocks, and 37% of its undesignated market
orders through the Boston Stock Exchange, where an affiliate controls a
specialist post."

Stock broker
A stock broker or stockbroker is a regulated professional who buys and sells
shares and other securities through market makers or Agency Only Firms on
behalf of investors.

Requirements
In order to become a stockbroker in the United States, a candidate must pass the
General Securities Representative Examination (also known as the "Series 7
exam").

In the UK, brokers are required to pass the SII (Securities and Investment
Institute link title) Certificate in Securities, this qualification is achieved by passing
two exams: Either Unit 1: FSA Financial regulations or Unit 6 Principles of
Financial Regulation for MiFID compliant retail trading, and either Unit 2:
Securities, Unit 3: Derivatives or Unit 4: for both Securities and Derivatives.
Passing Unit 1 or Unit 6 identifies individuals as having attained FSA Approved
Person Status.

Services provided
A transaction on a stock exchange must be made between two members of the
exchange — an ordinary person may not walk into the New York Stock Exchange
(for example), and ask to trade stock. Such an exchange must be done through a
broker.

There are three types of stock broking service.

• Execution-only, which means that the broker will only carry out the client's
instructions to buy or sell.
• Advisory dealing, where the broker advises the client on which shares to
buy and sell, but leaves the final decision to the investor.
• Discretionary dealing, where the stockbroker ascertains the client's
investment objectives and then makes all dealing decisions on the client's
behalf.

In addition to actually trading stocks for their clients, stock brokers may also offer
advice to their clients on which stocks, mutual funds, etc. to buy.

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Underwriter
Underwriting refers to the process that a large financial service provider (bank,
insurer, investment house) uses to assess the eligibility of a customer to receive
their products (equity capital, insurance, mortgage or credit). The name derives
from the Lloyd's of London insurance market. Financial bankers, who would
accept some of the risk on a given venture (historically a sea voyage with
associated risks of shipwreck) in exchange for a premium, would literally write
their names under the risk information which was written on a Lloyd's slip created
for this purpose. The person involved in underwriting is called underwriter.

Initial public offering

Initial public offering (IPO), also referred to simply as a "public offering", is when
a company issues common stock or shares to the public for the first time. They
are often issued by smaller, younger companies seeking capital to expand, but
can also be done by large privately-owned companies looking to become publicly
traded.

In an IPO, the issuer may obtain the assistance of an underwriting firm, which
helps it determine what type of security to issue (common or preferred), best
offering price and time to bring it to market.

IPOs can be a risky investment. For the individual investor, it is tough to predict
what the stock or shares will do on its initial day of trading and in the near future
since there is often little historical data with which to analyze the company. Also,
most IPOs are of companies going through a transitory growth period, and they
are therefore subject to additional uncertainty regarding their future value.

Stock Markets in Pakistan

There are three stock exchanges in Pakistan.

• The Karachi Stock Exchange

• Islamabad Stock Exchange
• Lahore Stock Exchange

The Karachi Stock Exchange

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Karachi Stock Exchange

Type Stock Exchange

Location Karachi, Pakistan
Owner Karachi Stock Exchange Limited
Key people Adnan Afridi, CEO
Currency PKR
No. of listings671
MarketCap US$ 73 billion
Volume US$ 12 billion
KSE 100 Index
Indexes
KSE-30 Index
Website www.kse.com.pk

The Karachi Stock Exchange or KSE is a stock exchange located in Karachi,

Sindh, Pakistan. Founded in 1947, it is Pakistan's largest and oldest stock
exchange, with many Pakistani as well as overseas listings. Its current premises
are situated on Stock Exchange Road, in the heart of Karachi's Business District.

Growth
The KSE is the biggest and most liquid exchange in Pakistan and in 2002 it was
declared as the “Best Performing Stock Market of the World” by “Business
Week”. As of December 20, 2007, 671 companies were listed with the market
capitalization of Rs. 4364.312 billion (US$ 73 Billion) having listed capital of Rs.
717.3 billion (US$ 12 billion). On December 26, 2007, the KSE 100 Index
reached its ever highest value and closed at 14,814.85 points.

Foreign buying interest had been very active on the KSE in 2006 and continued
in 2007. According to estimates from the State Bank of Pakistan, foreign
investment in capital markets total about US$523 Million. According to a research
analyst in Pakistan, around 20pc of the total free float in KSE-30 Index is held by
foreign participants.

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KSE has seen some fluctuations since the start of 2008. One reason could be
that it is the election year in Pakistan, and stocks are expected to remain dull.
KSE has set an all time high of 15,000 points, before settling around the 14,000
mark.

Karachi stock exchange Board of Directors has recently (2007) announced plans
to construct a 40 story high rise KSE building, as a new direction for future
investment.

Disputes between investors and members of the Exchange are resolved through
deliberations of the Arbitration Committee of the Exchange.

KSE began with a 50 shares index. As the market grew a representative index
was needed. On November 1st, 91 the KSE-100 was introduced and remains to
this day the most generally accepted measure of the Exchange. Karachi Stock
Exchange 100 Index (KSE-100 Index) is a benchmark used to compare prices
overtime, companies with the highest market capitalization are selected. To
ensure full market representation, the company with the highest market
capitalization from each sector is also included.

In 1995 the need was felt for an all share index to reconfirm the KSE-100 and
also to provide the basis of index trading in future. On August the 29th, 1995 the
KSE all share index was constructed and introduced on September 18, 1995.

Trading System
The Karachi Stock Exchange has introduced a state-of-the-art computerized
trading system known as Karachi Automated Trading System (KATS) to provide a
fair, transparent, efficient and cost effective market for the investors.

Currently, the exchange conducts one trading session from Monday to Thursday
and two sessions on Friday. The Trading is divided into four distinct segments,
each of which has its own clearing and settlement procedure. These are: T+3,
Provisionally Listed Companies, spot (T+1) Transactions and Future Contracts.

KSE 100 Index

The index was launched in late 1991 with a base of 1,000 points. By 2001, it had
grown to 1,770 points. By 2005, it had skyrocketed to 9,989 points. It then
reached a peak of 12,285 in February 2007. KSE-100 index touched the highest
ever benchmark of 14,814 points on December 26, 2007, a day before the
assassination of former Prime Minister Benazir Bhutto, when the index
nosedived. The index recovered quickly in 2008, reaching new highs near 15,500
in April. However, by November 22, 2008 during the global financial crisis of 2008
it had fallen to 9,187.

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2008 Karachi Stock Exchange Crisis

• April 20 : Karachi Stock Exchange achieved a major milestone when
KSE-100 Index crossed the psychological level of 15,000 for the first time
in its history and peaked 15,737.32 on 20 April, 2008. Moreover, the
increase of 7.4 per cent in 2008 made it the best performer among major
emerging markets.
• May 23: Record high inflation in the month of May, 2008 resulted in the
unexpected increase in the interest rates by State Bank of Pakistan which
eventually resulted in sharp fall in Karachi Stock Exchange.
• July 17 :Angry investors attacked the Karachi Stock Exchange in protest
at plunging Pakistani share prices.
• July 16 : KSE-100 Index dropped one-third from an all-time high hit in
April, 2008 as rising pressure on shaky Pakistan's coalition government to
tackle Taliban militants exacerbates concern about the country's economic
woes.
• August 18: KSE 100 Index rose more than 4% after the announcement of
the resignation of President Pervez Musharraf but Credit Suisse Group
said that Pakistan's Post-Musharraf rally in Stock Exchange will be short-
lived because of a rising fiscal deficit and runaway inflation.
• August 28 :Karachi Stock Exchange set a floor for stock prices to halt a
plunge that has wiped out $36.9 billion of market value since April.

Lahore Stock Exchange

Lahore Stock Exchange

Type Stock Exchange

Location Lahore, Pakistan
Owner Lahore Stock Exchange Limited
Key people Arif Saeed(Chairman)
Currency PKR
No. of listings 671
MarketCap US$ 73 billion
Volume US$ 12 billion.
Indexes LSE 25 Index

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Introduction
Lahore Stock Exchange was established in October 1970 and is the second
largest stock exchange in the country with a market share of around 12-16% in
terms of daily traded volumes. LSE has 519 companies, spanning 37 sectors of
the economy, that are listed on the Exchange with total listed capital of Rs.
555.67 billion having market capitalization of around Rs. 3.64 trillion. LSE has
152 members of whom 81 are corporate and 54 are individual members.

Activities of Lahore Stock Exchange (LSE) have increased significantly in all

operational areas since its inception. Over the years, LSE has successfully met
various challenges and has now emerged, fully geared and positioned to
aggressively compete with its fellow Exchanges, contributing towards the growth
of Capital Markets in Pakistan.

Islamabad Stock Exchange

Islamabad Stock Exchange is one of the three stock exchanges of Pakistan ..
Islamabad Stock Exchange is centrally located in Anees Plaza, Fazal ul Haq
Road, Islamabad. A new development project is underway to establish a new
building for the exchange. The Islamabad stock exchange is going to be shifted
to its new home in a few years, as the new Islamabad Stock Exchange is
currently under construction in the capital.

The ISE has set the highest standards of operational efficiency and is committed
to support a climate of confidence and optimism that encourages and promotes
trading activity. It also provides for conducive environment to channelize the
small investments of the residents of less developed areas. The ISE offers an
easy access to both domestic as well as foreign investors and actively
encourages the listing of eligible and profitable companies, both large and small
to make it an exciting and diverse Exchange. The Exchange is playing a pivotal
role for economic growth of the area thereby contributing towards the overall
economic prosperity and welfare of the country.

At present there are 118 members out of which 104 are corporate bodies
including commercial and investment banks, DFIs and brokerage houses. The
other 18 Members are individual persons who are well educated, enterprising
and progressive minded.

Review of Research article no.1

In the article “Volatility Spillover between the Stock Market and the Foreign
Exchange Market in Pakistan” published by Abdul Quyyum and A. R. Kamal the

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volatility spillover between the stock market and the foreign exchange market in
Pakistan. They used Engle Granger two step procedures and the volatility
spillover is modelled through bivariate EGARCH method. From the article we can
conclude that by using Engle Granger in the long run, there is no very much
strong relationship or effect of the both markets on each other. But the volatility
modeling shows that the stock market and foreign stock markets are dependent
each other. The return of one market is effected by the volatility of the other
specially volatility of foreign market effects very much on returns of stock
exchange. So there is strong relationship between the volatility of two markets. It
implies the existence of volatility spillover between the markets in Pakistan.

Review of Research article no.2

In the article ” Bid-ask Spread and Order Size in the Foreign Exchange Market:
An Empirical Investigation” published by Liang Ding empirically examines the
relationship between order sizes and spreads in the foreign exchange market
based on a FX dealer’s quotes. The spread is independent and is of no effect
by the order size in the inter-dealer market where as the two are negatively
correlated in the customer market. No model could not explain this finding alone
so there needs a new mode to explain. Because the positive and negative factors
offset each other so this implies spread is independent of order size in the inter-
dealer market., while the negative pattern in the customer market could be due to
the dominance of negative factors over positive ones.

Review of Research article no.3

In the article “Does an electronic stock exchange need an upstairs market?”
published by Hendrik Bessembinder and Kumar Venkataraman in which they
examined the Paris Bourse, whose electronic limit order market closely
resembles the downstairs markets envisioned by theorists, to test several
theoretical predictions regarding upstairs trading. From the article we can
conclude that upstairs brokers lower the risk of adverse selection by certifying
block orders as uninformed, upstairs brokers are able to tap into pools of hidden
or unexpressed liquidity, traders strategically choose across the upstairs and
downstairs markets to minimize expected execution costs, and trades are more

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likely to be routed upstairs if they are large or are in stocks with less overall
trading activity.

Conclusion
From the report on stock market, we have concluded that the stocks market are
important tool for raising capital and if the stock market is performing well, the
economy of that country will be in good position. It means the condition of
economy of a country can be found from the stock exchange. If the stock
exchange is performing well, it means investment is increasing which
consequently contributes in the economic conditions.

The future of stock trading appears to be electronic, as competition is continually

growing between the remaining traditional Stock Exchange specialist system
against the relatively new, all Electronic Communications Networks. OTC (over-
the-counter) is an emerging market.

The changes in the overall economic conditions and foreign stock markets and
political situation have an effect on the stock markets of Pakistan. “There is
strong relationship between the volatility of foreign market and the volatility of
returns in stock market. The returns of one market are affected by the volatility of
other market. Particularly the returns of stock market are sensitive to the returns
as well as the volatility of foreign exchange market.” As quoted by Abdul Quyyum
and A. R. Kamal.

Thus stock market is an indicator of economic conditions of a country.

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Bibliography
www.Wikipedia.org.
www.Jstor.org.
www.google.com.pk
www.KSE.com.pk
www.LSE.com.pk
www.ISE.com.pk
www.NYSE.com
www.SECP.com.pk

Fundamentals of financial management (Brigham &

Hoston)

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