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Impact of Monetary Policy on the Volatility of Stock Market in Pakistan

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  • Qayyum, Abdul
  • Anwar, Saba

Abstract

This paper addresses the linkages between the monetary policy and the stock market in Pakistan. The estimation technique employed includes Engle Granger two step procedure and the bivariate EGARCH method. The results indicate that any change in the monetary policy stance have a significant impact on the volatility of the stock market. Thus contributing to the ongoing debate in the monetary policy rule literature regarding the proactive and reactive approach.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 31188.

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Date of creation: 2011
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Publication status: Published in International Journal of Business and Social Science 11.2(2011): pp. 18-24
Handle: RePEc:pra:mprapa:31188

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Keywords: Interest Rate; Stock Market; Monetary Policy; EGARCH; Pakistan;

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  1. A Gregoriou & A Kontonikas & R MacDonald & A Montagnoli, 2006. "Monetary Policy Shocks and Stock Returns: Evidence from the British Market," Working Papers, Business School - Economics, University of Glasgow 2006_15, Business School - Economics, University of Glasgow.
  2. Ben Bernanke & Kenneth N. Kuttner, 2003. "What explains the stock market's reaction to Federal Reserve policy?," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Mar.
  3. Fazal Husain & Abdul Qayyum, 2006. "Stock Market Liberalisations in the South Asian Region," PIDE-Working Papers, Pakistan Institute of Development Economics 2006:6, Pakistan Institute of Development Economics.
  4. Ray Fair, 2003. "Events that Shook the Market," Yale School of Management Working Papers, Yale School of Management ysm307, Yale School of Management.
  5. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, Econometric Society, vol. 59(2), pages 347-70, March.
  6. Patelis, Alex D, 1997. " Stock Return Predictability and the Role of Monetary Policy," Journal of Finance, American Finance Association, American Finance Association, vol. 52(5), pages 1951-72, December.
  7. Christos Ioannidis & Alexandros Kontonikas, 2006. "Monetary Policy and the Stock Market: Some International evidence," Working Papers, Business School - Economics, University of Glasgow 2006_12, Business School - Economics, University of Glasgow.
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Cited by:
  1. Aliyu, Shehu Usman Rano, 2011. "Reactions of stock market to monetary policy shocks during the global financial crisis: the Nigerian case," MPRA Paper 35581, University Library of Munich, Germany, revised 28 Dec 2011.

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