Advanced Search
MyIDEAS: Login to save this article or follow this journal

Monetary Expansion and Stock Returns in Pakistan


Author Info

  • Fazal Husain

    (Pakistan Institute of Development Economics, Islamabad.)

  • Tariq Mahmood

    (Pakistan Institute of Development Economics, Islamabad.)


The effect of changes in money supply on stock returns has been a matter of controversy among economists for many decades. Those in favour of presence of links between money market and stock market argue that any change in money supply creates a wealth effect which disturbs the existing equilibrium in the portfolio of investors. When they re-adjust their asset portfolio, a new equilibrium is established in which the price level of various assets is changed. On the other hand, if the stock market is efficient, it would already have incorporated all the current and anticipated changes in money supply. Consequently, a causal relationship between changes in money supply and stock prices will not be established. Moreover if the change in money supply coincides with a corresponding change in the velocity of money, it will not have any effect on stock prices. The pioneering work in this regard was done by Sprinkel (1964). Using the data from 1918 to 1960, he found a strong relationship between stock prices and money supply in the United States. His conclusions, however, were mostly based upon graphical analysis. Sprinkel’s study brought many conceptual and methodological issues in the forefront. Elaborate statistical techniques were used to explore the relationship between money supply and stock prices. For example, Rozeff (1974) conducted an extensive study and concluded that U.S. stock market is efficient with respect to monetary policy. Similarly Kraft and Kraft (1977) found no causal relationship between money supply and stock returns in the States. Ho (1983) examined the causal relationship between money supply and stock returns for six Asian-Pacific countries.1 Using monthly data and employing minimum Final Prediction Errors, he found a uni-directional causality from money supply to stock prices for Japan and Philippines but bi-directional causality for Singapore.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 38 (1999)
Issue (Month): 4 ()
Pages: 769-776

as in new window
Handle: RePEc:pid:journl:v:38:y:1999:i:4:p:769-776

Contact details of provider:
Postal: P.O.Box 1091, Islamabad-44000
Phone: (92)(51)9248051
Fax: (92)(51)9248065
Web page:
More information through EDIRC

Related research


Other versions of this item:

Find related papers by JEL classification:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ho, Yan-ki, 1983. "Money supply and equity prices : An empirical note on Far Eastern countries," Economics Letters, Elsevier, vol. 11(1-2), pages 161-165.
  2. Kraft, John & Kraft, Arthur, 1977. "Determinants of Common Stock Prices: A Time Series Analysis," Journal of Finance, American Finance Association, vol. 32(2), pages 417-25, May.
Full references (including those not matched with items on IDEAS)


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Mehr-un-Nisa & Mohammad Nishat, 2011. "The Determinants of Stock Prices in Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(4), pages 276-291, December.
  2. Sirucek, Martin, 2012. "Macroeconomic variables and stock market: US review," MPRA Paper 39094, University Library of Munich, Germany.
  3. Sirucek, Martin, 2012. "The impact of money supply on stock prices and stock bubbles," MPRA Paper 40919, University Library of Munich, Germany.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:38:y:1999:i:4:p:769-776. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Khurram Iqbal).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.