Nexus between Governance Indicators & Sustainable Stock Market Development in Pakistan: Evidences from Symmetric and Asymmetric Analysis

The hidden non-linear association between governance indicators & stock market development (SMD) of Pakistan has been scrutinized in this study by using two comparative co-integrating techniques known as ARDL (Auto-regressive Distributed Lag) & NARDL (Non-linear ARDL). Empirical evidence suggests that misrepresented inferences arise by ignoring hidden non-linearity nexus between the variables. The ARDL results indicate that political stability & absence of violence/terrorism does not impact directly the SMD of Pakistan. Voice & accountability positively and significantly impact SMD, but rule of law does not impact SMD of Pakistan directly. The regulatory quality is highly significant and negatively impacts SMD. Contrarily, the NARDL frame indicates significant differences amid coefficients of components of governance index, denoting asymmetric links between variables. The Positive & Negative sums of partial decompositions of Rule of Law, Regulatory Quality, Political Stability & Absence of Violence/Terrorism (PS&AVT), and Voice & Accountability (V&A) significantly impact SMD. The impact of partial Negative multipliers of Regulatory Quality, and PS&AVT has a highly significant and negative impact, while V&A has a significant and positive impact on SMD. The impact of Positive partial multipliers of all variables is positive and significant except V&A. The comparative diagnostics extricate precariousness in policy moratorium. This study will add credence to the predictive power of governance indicators towards SMD of Pakistan by incorporating Positive and Negative decomposed multipliers.