Pakistan Journal of Applied Economics

1-27

Authors: Syed Zakir Abbas ZAIDI*

Basically this is an empirical study which aims to test the Markowitz Modern portfolio theory (MPT) or the mean-variance analysis. Fund managers and general investors seek a portfolio that yields maximum return with minimum risk. The problem of investors is dual in nature, as Markowitz showed, i.e., the indifferent choice of risk and return. Though, diversification reduces non-systematic risk but due to limited resources one cannot afford to invest in all stocks, therefore it is pertinent to know that what should be the minimum level of stocks in a portfolio that produces maximum return and minimum risk. The theoretical framework of Markowitz MPT tested by computed 134 months expected the return of thirty two stocks, thirty-one variances and 465 co-variances, in order to evaluate efficient portfolio frontier.

41-66

Authors: Ghulam MOHEY-UD-DIN* and Muhammad Wasif SIDDIQI**

This paper studies the relationship between GDP fluctuations and long-run economic growth by using macro-panel approach (with small N and large T) in a panel of five selected South Asian countries (SSAC) including Bangladesh, India, Nepal, Pakistan and Sri Lanka, over a period of 1980-2010. For this purpose, modern non-stationary panel techniques such as the cross section dependence test, unit root test under cross sectional dependence, panel cointegration and Group Mean Fully Modified OLS (GM-FMOLS) estimation are applied. The study finds a significant long-run cointegrating relationship between GDP fluctuations and long-run growth in the SSAC and GM-FMOLS estimates and shows that this link is negative. It indicates that GDP fluctuations have a significant negative impact on long-run growth in the SSAC and these fluctuations of GDP may be detrimental for long-run growth in developing countries. Therefore, the governments of such countries shouldn’t rely on growth-oriented policies only but should equally focus on managing these fluctuations in GDP to achieve sustained and stable growth rate.

89-100

Authors: Ayaz KHAN* and Samina KHALIL**

Informal economy is an observable issue around the globe. Researchers of both the developed and developing countries are continuously investigating its different dimensions (size, determinants, etc). The current study is an attempt to estimate the real size of informality (underground economy) in Pakistan. For its estimation the real factors of economy like employment level, political stability, tax to GDP ratio and cost of working in informal economy are used, over a period (Time series) of 1972 to 2010. HP-Prescott filter method is utilized for obtaining the potential GDP and actual GDP series from the estimated GDP which is estimated through Feasible Generalized Least Square (FGLS)1 and then from these series informal GDP is estimated. About 71 per cent of the informality was found, in the case of Pakistan economy. The finding suggests that combating informality, the factors taken must be targeted properly.

121-138

Authors: Nabeela KOUSAR,* Muhammad Rizwan YASEEN,** and Imran QAISER***

The recent literature looks at correlation coefficients between the current exchange rate and the past and future values of trade balance. It is postulated that these coefficients are positive between the current exchange rate and the future trade balance values; but are negative between the current exchange rate and the past values of trade balance, resembling the S-curve pattern. For the first time this study, try to determine the existence of S-curve for aggregate trade and sixteen industries of Pakistan trading with the world. Industries representing the Scurve are less in number; hence, only the exchange rate depreciation is not a fruitful option to boost the trade balance.