Choudha y, Mazha Hussain
A icle
Pakis an and Malaysia bila e al ade ag eemen (BTA): A
case o he Pakis an s ock exchange (PSX) eac ion
Financial In e ne Qua e ly
P o ided in Coope a ion wi h:
Uni e si y o In o ma ion Technology and Managemen , Rzeszów
Sugges ed Ci a ion: Choudha y, Mazha Hussain (2025) : Pakis an and Malaysia bila e al ade
ag eemen (BTA): A case o he Pakis an s ock exchange (PSX) eac ion, Financial In e ne Qua e ly,
ISSN 2719-3454, Sciendo, Wa saw, Vol. 21, Iss. 2, pp. 64-73,
h ps://doi.o g/10.2478/ iq -2025-0011
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Abs ac The goal o his in es iga ion is o es ablish a connec ion be ween he a ibu es o lis ed compa-
nies and he e ec s o he Pakis an-Malaysia Bila e al T ade Ag eemen (BTA) on Pakis an's s ock
ma ke s. Fo ha pu pose, his esea ch is o look a how he Pakis an S ock Exchange (PSX) was
a ec ed by he Bila e al T ade Ag eemen be ween Pakis an and Malaysia. The abno mal e u ns
ha e been compu ed be o e and a e he announcemen using an e en s udy me hodology.
The esul s demons a e ha he announcemen o he Pakis an-Malaysia (BTA) elici ed an im-
media e esponse om chosen sec o s o Pakis an, wi h mixed esponses, nega i e as well as
posi i e. Gi en ha he ex ile indus y is one o Pakis an's op expo indus ies, i s esponse
was encou aging. The s udy concludes ha he PSX was ulne able o his e en as well as ha
his pape has impo an ami ica ions o in es o s and ade policy make s.
JEL classi ica ion: G14, F13, F14
Keywo ds: E en S udy, Abno mal Re u ns, Pakis an-Malaysia Bila e al T ade Ag eemen , Pakis an S ock Exchange
Recei ed: 14.11.2024 Accep ed: 28.01.2025
Ci e his:
Choudha y, M.H. (2025). Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock Exchange (PSX) eac ion. Financial
In e ne Qua e ly 21(2), pp. 64-73.
© 2025 Mazha Hussain Choudha y, published by Sciendo. This wo k is licensed unde he C ea i e Commons A ibu ion-NonComme cial-
NoDe i a i es 4.0 License.
1 Depa men o Economics and Finance, College o Business Adminis a ion, Uni e si y o Ha’il, Kingdom o Saudi A abia, e-mail: d ma-
zha hussai[email p o ec ed], ORCID: h ps://o cid.o g/0000-0003-2355-7402.
Mazha Hussain Choudha y
Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock
Exchange (PSX) eac ion
Financial In e ne Qua e ly 2025, ol. 21 / no. 2
and Pakis an on No embe 8, 2007. This was he i s
comp ehensi e bila e al ade ag eemen (BTA) be-
ween Pakis an and Malaysia in eg a ing in es men ,
comme ce in p oduc s and se ices, and economic co-
ope a ion. Fo Pakis an, i was also he i s BTA o i s
kind wi h any Sou h Asian na ion. The goal o his ee
ade ag eemen was o inc ease bila e al ade be-
ween he wo na ions by doing away wi h impo and
expo du ies. Thus, he pu pose o his s udy is o ex-
amine he Pakis an S ock ma ke esponse, in con ex
o he announcemen o he Pakis an-Malaysia Bila e al
T ade Ag eemen in 2007 (Minis y o Comme ce, Paki-
s an).
O e he same pe iod, Pakis an's expo s o Malay-
sia climbed om $138.1 million o $232.8 million, while
i s impo s om Malaysia ell om $1.7 billion in 2008
o $956.9 million in 2019. As a esul , Pakis an's ade
de ici in 2019 was $724.1 million, he lowes since he
ee ade ag eemen ’s incep ion. Pakis an's impo s
om Malaysia peaked in 2011 and hen con inued o
all un il 2015 (In e na ional T ade Cen e - T ade Map).
The main obs acles o he ee ade ag eemen be-
ween Pakis an and Malaysia include Malaysia's mem-
be ship in he Associa ion o Sou heas Asian Na ions
(ASEAN), as well as i s ag eemen s wi h Vie nam, Indo-
nesia, India, China, and Thailand. The ad an ageous
e ec s o a i concessions g an ed o Pakis an unde
he FTA in essen ial indus ies ha e been lessened by
hese ee ade ag eemen s (FTAs) wi h Malaysia. I is
impo an o no e ha Pakis an's economic g ow h,
weal h, and ad ancemen a e g ea ly impac ed by he
FTA ha has been emphasized. Howe e , in o de o
iden i y po en ial ade sec o s and boos Pakis ani
expo s, a ho ough examina ion is necessa y. This will
enable Pakis an o eme ge as he egion's economic
leade and compe e wi h ASEAN na ions. This examina-
ion is he main ocus o his esea ch.
The Ka achi S ock Exchange was es ablished in
1947 and now i s name is he Pakis an S ock Exchange,
since Janua y 2016, a e he me ge o he Islamabad
S ock Exchange and he Laho e S ock Exchange. I is
an icipa ed ha he in eg a ion will lessen ma ke ag-
men a ion and make a compelling a gumen o lu ing
s a egic ading pa ne s like Malaysia and China e-
qui ed o supply echnological know-how and suppo .
Along wi h o e 220,000 e ail in es o s, he ex-
changes also ha e 1,886 o eign ins i u ional in es o s
and 883 local ins i u ional in es o s. Addi ionally, he e
a e 21 asse managemen i ms and oughly 400 b o-
ke age houses ha a e PSX membe s. The ansac ions
a e o ally au oma ed acco ding o in e na ional s and-
a ds. The e o e, in e na ional in es o s can easily se le
hei ansac ions online. Wi h 40% pa icipa ion in he
PSX, he Shanghai S ock Exchange eme ged as a signi i-
can sha eholde . App oxima ely, 154-155 Chinese in-
O e he pas hi y yea s, na ions and ading
blocs wo ldwide ha e been p ima ily conce ned abou
ade libe aliza ion. As a esul , mul ila e al nego ia-
ions and unila e al libe aliza ion measu es ha e been
o ganized unde he WTO pla o m. Fu he mo e, in
he cu en con ex , ini ia i es a bila e al and egional
libe aliza ion ha e been spa ked by ee ade ag ee-
men s (FTAs) and he inno a i e idea o global alue
chains. Fo example, he indings o Li e al. (2019)
demons a e ha global alue chains (GVCs) g ew be-
ween 2012-2017 and a e s ill p ima ily egional in na-
u e. The pa ne na ions in he lowe and medium
ends o GVCs will bene i mo e om he Chinese T ade
Ag eemen s han hose weal hie coun ies a he up-
pe end o GVCs, as claimed by Fei e al. (2020).
The majo i y o he s udies, like hose by Fa ha
& Ju ha hip (2018), Khan e al. (2018), Chien-Jung
(2019), Dao (2015), a e conce ned wi h ade libe aliza-
ion and mac oeconomic g ow h in he con ex o
Sou h and Eas Asia. Ne e heless, his s udy uses he
pe spec i e o Pakis an's s ock ma ke o empi ically
assess he e ec s o he BTA be ween Pakis an and
Malaysia in o de o supplemen he body o cu en
wo k, which has no ye been gi en adequa e a en ion
by schola s. Fu he mo e, he ea lie s udies shed ligh
on endogenous g ow h heo ies and ade hypo heses,
ne e heless, igno ing he ade analysis a he mic o
le el. The e o e, a he han assessing ade indica o s
a he na ional le el, his s udy signi ican ly closes a gap
in he li e a u e by examining i m s ock p ice eac ion.
The undamen al idea o his esea ch is ha sec o -
wise analysis can be ca ied ou on he o e all eac ion
o he s ock ma ke .
Since i s ounding in he 1960s, Malaysia has expe-
ienced ema kable economic g ow h and s ands ou
among he na ions o Eas Asia in e ms o p ospe i y.
Malaysia's economy was ini ially dependen on i s
abundan na u al esou ces, including mine als and
ag icul u al p oduc s. In 1968, he go e nmen imple-
men ed a numbe o ade e o ms, including he Ex-
po O ien ed Indus y (EOI) p og am, and changed he
s uc u e o he economy. A ound he same ime, he
go e nmen s a ed capi al-in ensi e indus ies. Malay-
sia a ed as he hi d la ges economy in he Eas Asian
a ea as a esul o i s EOI ac ics. In ac , Malaysia plays
a majo ole in he Eas Asian egion, and in o de o
ad ance economically and achie e weal h, collabo a-
ion, and ad ancemen , ini ially, Pakis an and Malaysia
pa icipa ed in he Ea ly Ha es P og am (EHP). This
a angemen 's goals we e o sa egua d he ma ke o
hei expo goods and o inc ease comme ce and p o-
ide in he economy a close ela ionship wi h im-
po an locals. Following he EHP p og am's success ul
conclusion, he i s BTA was inked be ween Malaysia
Mazha Hussain Choudha y
Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock
Exchange (PSX) eac ion
Financial In e ne Qua e ly 2025, ol. 21 / no. 2
ous s udies in ecen decades. Usually, ade ela ed
heo ies and da a a e used in hese in es iga ions. By
imp o ing he business en i onmen o he in ol ed
ading pa ne s, BTAs usually p omo e in es men and
ade in goods and se ices, as claimed by Kawai and
Winga aja (2008). Bo h sho - and long- e m e ec s on
inancial ma ke s a e caused by ee ade ag eemen
e ec s on he eal ma ke . None heless, he e a en'
many empi ical s udies ha look a how ee ade
ag eemen s migh a ec he inancial ma ke s, espe-
cially he s ock ma ke .
Acco ding o Fama's (1970) e icien ma ke hy-
po hesis, ma ke s a e e icien because secu i y p ices
luc ua e swi ly in esponse o new in o ma ion (such
as he signing o a BTA), which is he undamen al heo-
e ical ounda ion o he empi ical esea ch he e con-
duc ed on he ela ionship be ween BTAs and en e -
p ises' inancial success. Thompson (1993, 1994) looks
in o wha in es o s an icipa e will happen o Canadian
manu ac u ing companies and indus ies as a esul o
he US-Canada Bila e al T ade Ag eemen . She a gues
ha indus y-le el abno mal e u ns only co espond
o he Oc obe 1987 ag eemen da e. In es o pe cep-
ions o he e ec s o he FTA a e in luenced by econo-
mies o scale as well as compa a i e ad an ages, ac-
co ding o i m-le el esea ch.
Neze we and Ka angwa (2018) ca ied ou
a g ound-b eaking in es iga ion in o how he Mo occo-
US BTA deal a ec ed he S ock Ma ke o Casablanca.
This esea ch highligh ed how s ock e u ns we e sig-
ni ican ly posi i ely impac ed by he acco d, which
elimina ed axes on mo e han 95% o p oduc s and
se ices. These esul s lend c edence o he no ion ha
capi al ma ke s, being o wa d- hinking en i ies, swi ly
adjus o he an icipa ed inancial bene i s o bila e al
ade ag eemen s. Daelemans e al. (2018) and Waqa
e al. (1995) in es iga ed, wi h a pa icula emphasis on
he No h Ame ican F ee T ade Ag eemen (NAFTA),
he connec ion be ween ee ade ag eemen s (FTAs)
and he luc ua ions o exchange a es and sha eholde
e u ns. The indings o he s udy imply ha BTAs may
help c ea e a s ock ma ke en i onmen ha is mo e
p edic able and s able, which is good news o in es-
o s.
The con empo a y schola s ha e examined he
connec ion among BTAs and s ock exchanges in g ea
de ail like (Lan & Thao, 2024; And eas & Lisa, 2023;
Doowon, 2020; Feng e al., 2021). E en hough i is
commonly ecognized ha bila e al ade ag eemen s
(BTAs) ha e an impac on ade expo s and impo s,
G oss Domes ic P oduc , and sec o al p oduc ion, he
es o s can now mo e eadily access Pakis an's s ock
ma ke s. This has been done by PSX's in eg a ion wi h
China's s ock ma ke ia he China Connec In e ace
(PSX websi e).
The Bu sa Malaysia is among ASEAN's bigges s ock
exchanges. I s’ o me name was he Kuala Lumpu
S ock Exchange (KLSE). The s ock exchange, in conjunc-
ion wi h he Secu i ies Commission o Malaysia jus
like he Secu i ies Exchange Commission o Pakis an,
o e sees he coun y's capi al ma ke and, ia i s acili-
ies, ul ills i s esponsibili y o con ol. Mo eo e , i
p ese es o de in he buying and selling o inancial
secu i ies such as sha es, bonds, and inancial de i a-
i es.
This esea ch wo k con ibu es o he body o
knowledge in a numbe o ways. Fo ins ance, he
e ec s o ade in eg a ion on Pakis an's s ock ex-
change ha e no ye been he subjec o any empi ical
esea ch. Thus, by di ec ly demons a ing how Paki-
s an's s ock exchanges esponded o he Pakis an-
Malaysia BTA, his s udy is he i s o ackle his p ob-
lem. This s udy adds o he body o esea ch on he
e ec s o ade policy changes on s ock ma ke alues,
which has p ima ily ocused on de eloped na ions (e.g.
Ries, 1993; B einlich, 2014). Finally, his esea ch ex-
pands on signi ican con ibu ions made o he body o
knowledge abou p oduc i i y o businesses and ine i-
cien use o esou ces in eme ging inancial ma ke s.
An e en s udy has been applied o he s ock ma -
ke o de e mine he cumula i e abno mal e u ns. The
daily s a is ics o s ock p ices a he i m le el ha e
been collec ed o Pakis ani lis ed i ms be ween Janu-
a y o Decembe 2007 om he Pakis an S ock Ex-
change, as he esea ch is based on he signing o he
Pakis an-Malaysia Bila e al T ade Ag eemen on No-
embe 8, 2007. Fi s , he e alua ion is done on how
he news o he Pakis an-Malaysia BTA had a ec ed he
s ock ma ke s in Pakis an. Subsequen ly, he examina-
ion is b oadened o encompass se e al indus ies in
o de o asce ain whe he he eac ions o lis ed com-
panies o ade policy decla a ions a ies depending on
he indus y. Ul ima ely, he goal is o es ablish a con-
nec ion be ween he a ibu es o lis ed companies and
he e ec s o he Pakis an-Malaysia BTA on Pakis an's
s ock ma ke s.
This pape 's emainde is s uc u ed as ollows.
Sec ion 2 e iews he li e a u e on s ock exchange e-
ac ions o he ade ag eemen s. Sec ion 3 goes on o
de ail he da a and esea ch me hodology. The p ima y
indings a e p esen ed and discussed in Sec ion 4. In
Sec ion 5, he concluding obse a ions ha e been dis-
cussed.
The economic impac s o bila e al ade ag ee-
men s (BTAs) ha e been he subjec ma e o nume -
Mazha Hussain Choudha y
Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock
Exchange (PSX) eac ion
Financial In e ne Qua e ly 2025, ol. 21 / no. 2
Schola ly s udy has ocused a g ea deal on he
impac ha FTA news and e en s ha e on s ock p ices,
especially in ce ain indus ies. The exis ing li e a u e
has discussed he impac s o Bila e al T ade Ag ee-
men s (BTAs) announcemen and execu ion on di e -
en indus ies. I p o ides e idence ha hese BTAs,
oge he wi h he in o ma ion su ounding hem, cause
no iceable and equen ly s a is ically signi ican eac-
ions in he ma ke . Klein (2001) shed ligh on how
NAFTA has a ec ed a ious sec ions o he Mexican
S ock Exchange di e en ly. On he app o al and nego i-
a ing conclusion da es, posi i e abno mal e u ns we e
clea ly seen, wi h no able impac s on he pape /
cellulose, i on/s eel, and elec onics indus ies. In con-
as , he esponse om he insu ance, chemical, and
mining sec o s was weake , demons a ing he a ied
implica ions o FTA news ac oss a ious indus ies. Ha-
mid e al. (1997) in es iga ed he impac o he Canada-
US BTA in se e al indus ies. The s udy emphasized
ha la ge businesses, especially in he sec o s o oil
and gas, ex iles and compu e s, we e mo e no iceably
impac ed by he BTA announcemen . Addi ionally, Pa-
indu i e al. (2013) in es iga ed how he US-Singapo e
F ee T ade acco d a ec ed company sha e p ice lis ed
on he Exchange o Singapo e and ound ha he ac-
co d was la gely well- ecei ed by he ma ke .
The esea ch highligh s he complex ela ionship
be ween indus y speci ic s ock ma ke eac ions and
ee ade ag eemen (FTA) news, highligh ing he c u-
cial impac o a iables including i m size, indus y
ype, and economic en i onmen . All o he esul s
poin o how c ucial i is o ake sec o al di e ences
in o accoun when analyzing he wide economic im-
pac s o BTAs. By analyzing he complex ela ionships
be ween Pakis an-Malaysia BTA in o ma ion, and in-
dus y-speci ic capi al ma ke eac ions in a de eloping
na ion such as Pakis an, his esea ch seeks o ill his
gap. Hence, he ollowing hypo heses a e de eloped as
ollows, d awing on he abo e highligh ed discussion.
H1: Announcemen o he Pakis an- Malaysia BTA had
a signi ican impac on he Pakis an S ock Ex-
change.
H2: Announcemen o he Pakis an-Malaysia BTA had
a signi ican impac on sec o s lis ed on he Paki-
s an S ock Exchange.
The sample i ms chosen o his pape a e om
he Pakis an S ock Exchange (PSX) du ing he Janua y–
Decembe 2007 pe iod, as well as he KSE 100 index,
which se es as a ma ke p oxy. The Pakis an S ock
Exchange websi e has been used o collec he in o -
ma ion on daily ma ke p ices o each i m as well as
he daily KSE 100 index. Addi ionally, h ough he Min-
is y o Comme ce Pakis an websi e he announcemen
s o y o hese ag eemen s' immedia e and long- e m
e ec s on s ock ma ke s is less clea . Budzinski (2013),
es ablished he s ock ma ke as a judge o e alua ing
choices made in economic policy, especially hose pe -
aining o ee ade ag eemen s. Acco ding o
Budzinski (2013), because i se es as bo h an unbiased
assesso and a sou ce o s ock exchange da a o e en
esea ch, he s ock ma ke o e s a eal depic ion o
sha eholde sen imen and expec a ions abou BTAs.
Acco ding o his pe spec i e, s ock exchange eac ions
migh se e as immedia e p edic o s o he pe cei ed
winne s o lose s o BTAs.
Addi ionally, B einlich e al. (2018) looked in o how
B exi would a ec he s ock ma ke . These esul s sug-
ges ha he pe o mance o he s ock ma ke can be
signi ican ly impac ed by changes in policy on ade,
like he c ea ion o changes o BTAs. Posi i e pe cep-
ions o he possible ad an ages o ee ade ag ee-
men s can boos s ock p ices. Mo eo e , Kawasaki
(2003) p oposed ha by go e nmen s in de eloping
coun ies like Pakis an could boos in es o assu ance
and ecognize economic bene i s ha lead o capi al
ma ke g ow h by es ablishing ag eemen s wi h de el-
oped and economically s able pa ne s.
Dü and Lechne (2019) looked in o how news o
he ailu e o ad ance he T anspaci ic Pa ne ship
(TPP) and T ansa lan ic T ade and In es men Pa ne -
ship nego ia ions a ec ed he s ock p ices o a ious
kinds o companies. They disco e ed p oo ha he
majo i y o ade ag eemen bene i s go o medium
sized businesses. Using Meli z's (2003) dynamic indus-
y model wi h he e ogeneous en e p ises, B einlich
(2016) examines how he 1989 Canada-Uni ed S a es
F ee T ade Ag eemen (CUSFTA) has a ec ed he s ock
ma ke . The possible e ec s o ade in eg a ion on he
sho - and long- e m ola ili y dynamics be ween he
s ock ma ke in Malaysia and ou een majo de el-
oped and de eloping s ock ma ke s in Ame ica, Eu ope,
A ica, Asia, and Oceania a e he main subjec o Qian
and Diaz's (2017) s udy. They con end ha he majo i y
o Malaysia's main ading pa ne s' s ock indices ha e
a conside able impac on he coun y's s ock ma ke .
The inc easing ma ke in eg a ion be ween Malaysia
and i s ading pa ne s explains hese spillo e e ec s.
Con empo a ily, C owley e al. (2019) look a he s ock
ma ke esul s o Chinese companies ha a e publicly
lis ed and wo ked in he sola panel business in 2012
and 2013 in eac ion o he Eu opean Union's an-
nouncemen o addi ional impo es ic ions and
changes o Chinese domes ic policy. Thei p ima y ind-
ing aligns wi h Meli z's (2003) model, which pos ula es
ha s ock ma ke losses we e highe o la ge , mo e
expo -o ien ed en e p ises when news o Eu opean
ade es ic ions was eleased.
Mazha Hussain Choudha y
Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock
Exchange (PSX) eac ion
Financial In e ne Qua e ly 2025, ol. 21 / no. 2
ma ed e u n E (Ri ) he abno mal e u n (ARi ) o he
sha e o a gi en day du ing he e en window has
been calcula ed in his s udy, on he signing da e o he
Pakis an-Malaysia BTA. As he disc epancy be ween i s
ac ual e u n and he e u n p edic ed by applying he
subsequen o mula o de e mine (ARi ):
(4)
Whe e: ARi = The abno mal e u n, E(Ri ) = p edic ed
e u n based on he sha e's αi and βi as well as he e-
u n o he KSE 100 index, Ri = ac ual s ock e u n on
e en window day .
The abno mal e u n du ing he e en window has
been ega ded by he s udy as an indica o o how he
sha e's ma ke alue was a ec ed by he announce-
men o he Pakis an-Malaysia BTA signing da e. The
en i e abno mal e u ns h oughou he cou se o he
e en window a e measu ed by he cumula i e abno -
mal e u n, o CAR. Fo e e y day be ween Day -5 and
Day +5, he Cumula i e Abno mal Re u n (CAR) has
been calcula ed. The o mula o calcula e he CAR o
ime is as ollows:
(5)
Whe e: CAR = Cumula i e Abno mal Re u n and AR
= The abno mal e u n, = -5, … + 5.
The announcemen o he Pakis an-Malaysia BTA
signing da e's impac on equi ies wi hin he pe iod o
e en , bo h p e and pos day o he e en , has been
measu ed using ARs. Then, in o de o de e mine whe -
he o no compa ed o day 0, he ARs a e much di e-
en du ing he cou se o he e en pe iod, he
-s a is ics o each day is compu ed. Fo each AR alue,
he -s a is ics a e compu ed u ilizing he ollowing
o mula:
(6)
Whe e: AR =The abno mal e u n.
The a e age AARs and CAARs o each company o
each day in he e en window a e de e mined a e he
ARs and CARs o he days in he e en window which
ha e been de e mined. The ollowing o mula is used
o ge a e age AAR and CAAR alues:
(7)
Whe e: CAAR = Cumula i e A e age Abno mal Re u n.
To de e mine he e ec on s ocks du ing he e en
window p io o and ollowing he e en day, CARs
ha e been compu ed. A e compu ing he a e age
CAARs, he e en window's -s a is ics a e calcula ed o
de e mine whe he o no he mean CAARs di e
e en window was c ea ed 5 wo king days p io o and
5 days ollowing he Pakis an-Malaysia BTA da e o
announcemen . A o al o 100 lis ed i ms om a ious
PSX sec o s, including ex ile, au o and allied, cables
and elec ic goods, cemen , glass and ce amics, ood
p oduc s and oil and gas, a e included in he s udy o
he pe iod om Janua y 1, 2007, o Decembe 31,
2007.
The ollowing o mula has been u ilized o compu e
he daily compounded e u ns o examina ion:
(1)
Whe e: Ri, = daily e u n o he sha es on day and
ln = na u al loga i hm
P = Cu en day sha e p ice
P -1 = P e ious day sha e p ice
The KSE 100 Index e u n, which se es as a ma ke
p oxy, is compu ed using he ollowing o mula:
(2)
Whe e: Rm, = daily e u n o he KSE 100 index on day
and
ln= na u al loga i hm
P = Cu en day KSE 100 index alue
P -1 = P e ious day KSE 100 index alue
The da es o he KSE 100 Index wi h each i m's
sha e e u n and i s daily e u ns ha e been synch o-
nized. The day o he announcemen o he Pakis an-
Malaysia BTA se es as he basis o c ea ing he e en
window, which was he day o signing he ag eemen
be ween he wo coun ies and when i was made pub-
lic. To measu e he sha e's beha io , es ima ion and
e en windows ha e been c ea ed. To be mo e p ecise,
o he p edic ion o he model o he s ock's e u ns
unde ypical ci cums ances, he es ima ion window is
u ilized.
The ma ke model ha has been employed was
i s p esen ed by B own and Wa ne (1985). Fo ha
pu pose, he eg ession is execu ed o bo h he sha e
e u ns and he KSE 100 Index e u ns. He e is how he
ma ke model o a sha e i migh be s a ed:
(3)
Whe e: E (Ri ) is he p edic ed e u n based on he
sha e's αi and βi as well as he e u n o he KSE 100
index.
O dina y leas -squa e eg ession is used o es ima-
e he coe icien s αi and βi o e he es ima ion win-
dow, whe e Ri and Rm s and o he s ock and he ma -
ke e u n o KSE 100 Index on day , espec i ely.
To measu e he e ec o he Pakis an-Malaysia BTA
da e o announcemen on he e u n o he s ock du-
ing he e en pe iod, ha ing i s compu ed he es i-
,1
( / )
i
R ln P P−
=
,1
( / )
m
R ln P P−
=
()
i i i m
E R R
= +
()
i i i
AR R E R=−
CAR AR=
() AR
s a is ic AR S anda d E o
−=
CAR
CAAR n
=
Mazha Hussain Choudha y
Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock
Exchange (PSX) eac ion
Financial In e ne Qua e ly 2025, ol. 21 / no. 2
(9)
Pe o ming he eg ession will yield he s anda d
e o o he expec ed y- alues. Addi ionally, he signi i-
cance o he e en 's abno mal e u ns has been de e -
mined wi h he assis ance o his alue. -5 days p io o
and +5 days ollowing he announcemen ha ing been
es ablished in he e en window. Equa ion 9 is he ma -
ke model ha has been u ilized o quan i y he anno-
uncemen ’s impac in he e en pe iod. The indings
indica e ha he e we e mul iple no able subs an ial
abno mal e u ns wi hin he e en window o P ospe i-
y Wea ing Mills L d., ollowing he announcemen o
he Pakis an-Malaysia BTA signing da e. As p e iously
no ed, he impo ance o he abno mal e u ns is de-
e mined using he s anda d e o o he eg ession
o ecas . Table 1 shows ha he -s a is ic alues a e
signi ican a e he e en day on No embe 13, 14, and
16, 2007.
signi ican ly om day 0 du ing he cou se o he e en
window. Fo each a e age CAR alue, he -s a is ic is
compu ed by u ilizing he o mula below:
(8)
whe e σ = he s anda d de ia ion o he ime se ies.
One company's esul s a e discussed he e, ho-
we e he e en analysis has a emp ed o assess he
e ec o he announcemen o Pakis an-Malaysia BTA
signing day o PSX's 100 lis ed companies' e u ns. The
e en window has been se up o he 244 ading days
ha p eceded he 5 days p io o P ospe i y Wea ing
Mills L d.'s announcemen on No embe 8, 2007. The
indings o he eg ession show ha P ospe i y
Wea ing Mills L d., beha ed no mally o e he es ima-
ion window:
()
()
CAAR
s a is ic CAAR
n
−=
, 100,
( ) 0.001233 0.024806
P ospe i y KSE
E R R= − +
Table 1: P ospe i y Wea ing Mills L d. Tex ile Sec o
Days Da es ER Abno mal
Re u n CAR s a Decision
-5 1.11.07 -0.001233000 0.001233000 -0.001233000 0.048808487 No
-4 2.11.07 -0.001233000 0.001233000 0.000000000 0.048808487 No
-3 5.11.07 -0.001233000 0.001233000 0.001233000 0.048808487 No
-2 6.11.07 -0.001233000 0.001233000 0.002466000 0.048808487 No
-1 7.11.07 -0.001233000 0.001233000 0.003699000 0.048808487 No
-0 8.11.07 -0.001233000 0.001233000 0.004932000 0.048808487 No
-1 12.11.07 -0.001233000 0.001233000 0.006165000 0.048808487 No
-2 13.11.07 0.001131264 0.094178915 0.100343915 3.728086275 Yes
-3 14.11.07 0.000925404 0.086085973 0.186429888 3.407725943 Yes
-4 15.11.07 -0.001233000 0.001233000 0.187662888 0.048808487 No
-5 16.11.07 0.000752539 0.079290168 0.266953057 3.138713018 Yes
Sou ce: Au ho s’ own wo k.
Table 2 shows he cumula i e abno mal e u ns
and associa ed -s a is ics o he ep esen a i e 100
PSX-lis ed i ms. The indings demons a e ha (day -5)
and (day -3) exhibi nega i ely signi ican -s a is ics
alues p io o he e en day. The -s a is ics alues on
days 2, 3, and 5 ollowing he occu ence a e all posi-
i ely signi ican . Day 4 ollowing he occu ence, how-
e e , has a nega i e signi icance. As a esul , i has been
shown ha du ing he cou se o he e en window,
CAARs di e signi ican ly om day 0.
The signi icance le el o he -s a is ic is se a 1%,
i i is g ea e han 2.58. Table 1 shows ha he abno -
mal e u ns on No embe 13 h, 14 h and 16 h o 2007 is
signi ican a he 1% le el. Addi ionally, he s ock e-
u ns demons a e ha P ospe i y Wea ing Mills L d.'s
s ock e u ns imp o ed as a esul o he Pakis an-
Malaysia BTA signing da e announcemen .
As seen by G aph 1, he Cumula i e Abno mal Re-
u n (CAR) ollowing he e en s o No embe 13 h, 14 h,
16 h is qui e no ewo hy. The e had been posi i e
weal h c ea ion o P ospe i y Wea ing Mills L d. s ock-
holde s h oughou he b ie ime ame cap u ed by
his e en window.
Mazha Hussain Choudha y
Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock
Exchange (PSX) eac ion
Financial In e ne Qua e ly 2025, ol. 21 / no. 2
Howe e , beha io al inance sugges s ha indi id-
uals who en e he capi al ma ke due o a ep esen a-
ional bias beha e like an in es o who unde - eac s o
o e eac s o he la es in o ma ion. In line wi h ea lie
esea ch in he li e a u e, he s udy es ima es cumula-
i e abno mal e u ns o eco d hese eac ions i e
days p io o and a e he inciden s.
The indus ies ha showed a s a is ically signi ican
nega i e eac ion on he 4 h day a e he announce-
The esul s show he changes in policy o ade, like
he adop ion o al e a ion o BTAs. Subsequen ly, i had
subs an ial e ec on capi al ma ke esponse. The e-
o e, he esul s a e aligned wi h he s udies o e-
sea che s like C owley e al. (2019), B einlich e al.
(2018), Neze we and Ka angwa (2018), Daelemans e
al. (2018), Budzinski (2013) and sa is y he hypo hesis
H1.
Table 2: Cumula i e Abno mal Re u ns o selec ed 7 sec o s
Sec o s Va iables E en Day
-5 -4 -3 -2 -1 0
Tex ile
CAR
-0.0057 0.0080 0.0047 -0.0031 0.0018 -0.0008
Glass and Ce amics -0.0491 0.0059 0.0026 -0.0077 -0.0004 -0.0030
Cables and Elec ic goods -0.1009 0.0054 -0.0068 0.0012 -0.0267 -0.0050
Food P oduc s -0.1069 -0.0021 -0.0171 -0.0046 -0.0284 -0.0050
Au o & Allied Indus y -0.1366 -0.0388 -0.0600 0.0145 -0.0054 0.0188
Cemen -0.1385 -0.0416 -0.0619 0.0082 -0.0115 0.0145
Oil and Gas -0.1682 -0.0783 -0.1049 0.0273 0.0115 0.0383
CAAR -0.1009 -0.0202 -0.0348 0.0051 -0.0084 0.0083
T-Value -4.6717 -1.4206 -2.1913 0.5335 -0.5849 0.8491
Sec o s Va iables E en Day
1 2 3 4 5
Tex ile
CAR
-0.0002 0.0993 0.0880 0.0047 0.0862
Glass and Ce amics -0.0023 0.0972 0.0858 0.0025 0.0841
Cables and Elec ic goods 0.0443 0.1081 0.0738 -0.0148 0.0836
Food P oduc s 0.0541 0.1119 0.0690 -0.0251 0.0733
Au o & Allied Indus y 0.0372 0.1091 0.0635 -0.0495 0.0665
Cemen 0.0310 0.1049 0.0616 -0.0514 0.0646
Oil and Gas 0.0141 0.1021 0.0560 -0.0758 0.0578
CAAR 0.0255 0.1047 0.0711 -0.0299 0.0737
T-Value 1.2554 2.9627 2.0697 -2.8798 2.3519
Sou ce: Au ho s’ own wo k.
G aph 1: E en window - p ospe i y Wea ing Mills L d. ex ile sec o
Sou ce: Au ho own wo k.
Mazha Hussain Choudha y
Pakis an and Malaysia Bila e al T ade Ag eemen (BTA): A case o he Pakis an S ock
Exchange (PSX) eac ion
Financial In e ne Qua e ly 2025, ol. 21 / no. 2
ing a i s uc u es, and new ma ke en ies all had
di e ing deg ees o impac on he sec o s. All indus-
ies we e a ec ed by he new le el o ma ke isk
b ough abou by he Pakis an-Malaysia BTA, which
may ha e had an e ec on in es o isk p emiums.
Las ly, a small numbe o sec o s exhibi ed cumula i e-
ly nega i e abno mal e u ns on he hi d and i h days
p io o he announcemen . The cumula i e abno mal
e u ns we e mixed ollowing he announcemen . The
indings also indica e ha no all indus ies suppo
ee ade ag eemen s (FTAs), meaning ha local busi-
nesses may obse e inc eased i al y om in e na ion-
al en e p ises.
The s udy's conclusions ha e impo an ami ica-
ions o in es o s and decision make s in a ious a e-
as. Fi s , in es o s may be able o bene i om u u e
ee ade ag eemen s (FTAs) be ween Pakis an and
o he Sou h Asian na ions. In doing so, hey can allo-
ca e mo e money o indus ies ha s and o gain om
he FTAs and less o o none a all o indus ies whe e
he FTAs may aise isk. Second, in o de o educe any
po en ial nega i e e ec s on speci ic indus ies ha
migh be mo e ulne able o he FTAs he ade policy
decision make s can use he in o ma ion om his e-
sea ch o in o m ele an ade policy modi ica ions. As
i has been obse ed ha on Day 2, Day 3, and Day 5 o
he e en e e y indus y esponded well. Consequen -
ly, i is ad ised ha hose esponsible o ade policy
will help hese indus ies o boos hei expo s, as his
could help Pakis an's economy o achie e sus ainable
de elopmen goals. Policymake s mus pay pa icula
a en ion o sa egua ding he in e es o po en ial ex-
po s sec o s such as ex iles, ood p oduc s, glass and
ce amics, and cemen . Fo example, o he sake o
educ ion in p oduc ion cos s i is sugges ed ha he
go e nmen should p o ide cheap elec ici y as well as
educed impo du y on aw commodi ies, and on im-
po ed machine y in o de o boos expo s o high-
ligh ed sec o s.
The Pakis an-Malaysia BTA had been in o ce o
app oxima ely 18 yea s, a e analyzing he economic
si ua ion o Pakis an du ing his ime pe iod. I has
been ound ha he Pakis an S ock Exchange (PSX) had
de eloped and was con ibu ing o sus ainable eco-
nomic de elopmen by using a digi al sys em o ad-
ing. The e o e, he in es o s esponded swi ly and
s ongly o a good news announcemen . The sec o s
which pe o med well in he PSX con ibu ed o he
de elopmen o he Pakis an economy because o hei
expo po en ial. I is e iden ha he en op expo s
such as ex ile p oduc s and ood p oduc s (ce eals,
edible ege ables, ish i ems) o Malaysia made up
83.9% o Pakis an's o al expo s o Malaysia du ing he
pe iod om 2008 o 2019 (Pakis an Business Council).
men , when he Pakis an-Malaysia BTA signing o he
Ag eemen was made o icial, we e au o and allied,
cables and elec ic goods, cemen , ood p oduc s, “and
oil and gas. Howe e , on he 4 h day ollowing his an-
nouncemen , he ex ile and glass and ce amics sec o s
esponded posi i ely. Day 2, Day 3, and Day 5 saw ex-
cellen esponses om e e y indus y. As a esul , his
is a ypical example o demons a e he indus y's ca-
paci y o pass cos s o wa d o cus ome s. These ind-
ings a e simila o he examina ion o Klein (2001), Ha-
mid e al. (1997) and Pa indu i e al. (2013) and hypo h-
esis H2 also was accep ed.
Thus, he esul s clea ly indica e ha Pakis ani
s ock ma ke s showed s ong and s a is ically signi i-
can sensi i i y o he Pakis an-Malaysia BTA e en
bo h be o e and igh a e he announcemen s. Few
indus ies aced nega i e e ec s because consume s
we e choosing impo ed b ands o e local ones, which
lowe s demand o local b ands. Howe e , he e en
was well ecei ed by he indus ies ha gained om
educed manu ac u ing cos s. In he hi d and i h days
be o e he announcemen , a ew sec o s showed cu-
mula i ely nega i e abno mal e u ns. A e he an-
nouncemen , he cumula i e abno mal e u ns showed
a ied esul s. Addi ionally, he esul s show ha no all
indus ies we e in a o o ee ade ag eemen s
(FTAs), which could lead o mo e compe i ion om
o eign companies o local businesses. Consequen ly,
he indings a e consis en wi h bo h hypo heses; (H1)
and (H2) and a e deemed accep able.
The No embe 2007 signing o he Pakis an-
Malaysia BTA was an icipa ed o ha e a majo posi i e
impac on Pakis an's economy. This s udy looks a how
he e en s su ounding he Pakis an-Malaysia BTA
a ec ed he coun y's s ock ma ke . Using ecognized
e en me hodology, he abno mal e u ns ha e been
measu ed a ound he news e en s o his eason.
Measu emen s o he eac ions bo h be o e and a e
he announcemen s p oduced a numbe o in iguing
indings.
Fi s , bo h immedia ely ollowing and p io o he
announcemen s, he Pakis ani s ock ma ke exhibi ed
conside able and s a is ically signi ican sensi i i y o
he Pakis an-Malaysia BTA e en . Second, he news
inciden had a de imen al impac on a ew indus ies
and elici ed a nega i e eac ion om he in es men
communi y. Local b ands aced educed demand as
a esul o he Pakis an-Malaysia BTA, which shi ed
consume p e e ence owa ds impo ed b ands. The
sec o s ha bene i ed om lowe manu ac u ing cos s,
howe e , eac ed a o ably o he e en . Thi d, an in i-
guing image was pain ed by sec o al pe o mance in
he icini y o he e en s. The indus y ea u es shi ed
in he deg ee o compe i ion b ough abou by chang-
