The Impact Of Profitable Firms Of Pakistan On Stock Market Bubbling

In this study, we investigate how profitable firms impact the Pakistan Stock Exchange (PSX) during different stages of stock market bubbles. The regression analysis of transaction multiples and inverse transaction multiples demonstrates that trading in the equities of profitable firms increased throughout the bubble phases, except during bubble-crash periods, when it declined. The regression findings also suggest that investors in the Pakistan Stock Exchange have weak financial knowledge and financial risk management skills and tend to depend on market manipulation for profits and discounts. As a result, they are significantly affected by market irregularities or manipulation in equity markets while trading securities.

Consequently, the managerial incentives and cost of capital of profitable companies have increased as a result of the relevance of accounting information, earnings manipulation, and the execution of investment plans or activities. Equity holders of profitable firms follow equity price movements in anticipation of future returns because, as equity prices increase, they tend to invest more in pursuit of higher returns in the market. The regression analysis of the present research indicates that the bubble phenomenon in the Pakistani stock market could be curtailed by improving the financial knowledge of market arbitrageurs.