The Stock Market and the Economy in Pakistan
AbstractThis 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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2721.
Date of creation: 2001
Date of revision:
Publication status: Published in Pakistan Development Review 2.49(2001): pp. 107-114
Financial market; Pakistan;
Other versions of this item:
- G1 - Financial Economics - - General Financial Markets
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
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