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The Stock Market and the Economy in Pakistan

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  • Hsain, Fazal
  • Mahmood, Tariq

Abstract

This paper re-examines the causal relationship between stock prices and macro variables like consumption expenditure, investment spending, and economic activity (measured by GDP) in Pakistan. Using annual data from 1959-60 to 1998-99 and applying cointegration and error correction analysis, the paper indicates the presence of long-run relationship between stock prices and macro variables. Regarding the cause and effect relationship, the analysis indicates a one-way causation from macro variables to stock prices, implying that in Pakistan fluctuations in macro variables cause changes in stock prices. The findings suggest that the stock market in Pakistan is not that developed to play its due role in influencing aggregate demand. A disturbing feature of the stock market in Pakistan is that it cannot be characterised as the leading indicator of economic ctivity. In the absence of other strong indicators,shooting up of stock prices may indicate a speculative bubble.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 2721.

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Date of creation: 2001
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Publication status: Published in Pakistan Development Review 2.49(2001): pp. 107-114
Handle: RePEc:pra:mprapa:2721

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Keywords: Financial market; Pakistan;

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References

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  1. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 1(1), pages 15-29, February.
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Cited by:
  1. Nadeem Iqbal & Sajid Rahman Khattak & Muhammad Arif Khattak, 2013. "Relationship between Macroeconomic Variables and KSE-100 Index: Evidence from Pakistan," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 5(4), pages 101-105, December.
  2. Mehr-un-Nisa & Mohammad Nishat, 2011. "The Determinants of Stock Prices in Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, Asian Economic and Social Society, vol. 1(4), pages 276-291, December.
  3. Matthew McCartney, 2011. "Pakistan, Growth, Dependency, and Crisis," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 71-94, September.
  4. Shahbaz, Muhammad & Islam, Faridul, 2010. "Stocks as Hedge against Inflation in Pakistan: Evidence from ARDL Approach," MPRA Paper 30970, University Library of Munich, Germany, revised 23 Mar 2011.
  5. Javid, Attiya Yasmin & Ahmad, Eatzaz, 2008. "Testing multifactor capital asset pricing model in case of Pakistani market," MPRA Paper 37341, University Library of Munich, Germany.
  6. Raza, Muhammad Wajid & Mohsin, Hasan M, 2011. "Financial liberalization and macroeconomic performance, empirical evidence from selected Asian countries," MPRA Paper 34559, University Library of Munich, Germany, revised 12 Oct 2011.
  7. Mohammed Nishat & Rozina Shaheen, 2004. "Macroeconomic Factors and Pakistani Equity Market," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 43(4), pages 619-637.
  8. Khan, Abdul Qayyum Khan & Khattak, Naeem Ur Rehman Khattak & Khattak, M Saghir & Hussain, Anwar Hussain, 2008. "Inter-Dependencies in Budget Deficit and its Financing Sources in Pakistan (1960-2005)," MPRA Paper 42031, University Library of Munich, Germany.
  9. Rashid, Abdul, 2007. "Exchange rates or stock prices, what causes what: A firm level empirical investigation," MPRA Paper 27209, University Library of Munich, Germany.

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