This paper analyzes the presence of a speculative component during the extraordinary upsurge in Karachi Stock Exchange. We implement cointegration tests, between 1997 and 2008, on price and dividends of various market and sectoral indices. The no bubble hypothesis could not be rejected for market level indices establishing the presence of a speculative factor.Among sectoral indices, banking sector depicted a speculative component, however, the price level of Oil and Gas sector did not diverge from the related dividends.These results remained robust with evidence of persistent volatility shocks for the sample period.