Macro Economic Uncertainty of 1990s and Volatility at Karachi Stock Exchange

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Macro Economic Uncertainty of 1990s and Volatility at Karachi Stock Exchange

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Mamoon, Dawood

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Dawood Mamoon

Abstract

The paper examines the short to medium term trends and volatility in Karachi Stock Exchange and further explore the nature of relationship between stock market activities and a set of macroeconomic variables in 1990s. The analysis is based on daily and monthly data on general stock price index and trading volume and monthly data on inter bank call rate, wholesale price index, quantum index of manufacturing sector’s output and monetary aggregate M2 and it covers the period January 1992 to June 1999. The paper finds that in 1990s, the stock market at Karachi has become more volatile both on short-term (daily) and medium term (monthly) basis. Furthermore strong volatility inertia was present in stock price index, trading volume, wholesale price index, manufacturing output and money supply. The paper finds that there did not exist any systematic relation of stock price volatility with real or nominal macroeconomic volatility. Likewise, for the sample period, a volatile trading volume was neither due to a volatile stock price nor due to the fluctuations and shocks taking place in the economy. However, there was a negative long run relationship between stock price index and trading volume which suggests that the stock market has grown in size but its performance in terms of price has deteriorated. We also find that the level of real activity as indicated by manufacturing sector’s output responds positively to changes in stock price index. Therefore a poor performance of the stock market was likely to have had played at least some negative effects on the performance of manufacturing sector in the said period.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3219.

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Date of creation: May 2007
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Handle: RePEc:pra:mprapa:3219

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Find related papers by JEL classification:
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
E00 - Macroeconomics and Monetary Economics - - General - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-05-19 (All new papers)
NEP-MAC-2007-05-19 (Macroeconomics)

References listed on IDEAS
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Husain, Fazal, 1997. "The Random Walk Model in the Pakistani Equity market: An Examination," MPRA Paper 5034, University Library of Munich, Germany. [Downloadable!]
Other versions:
- Fazal Husain, 1997. "The Random Walk Model in the Pakistani Equity Market: An Examination," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(3), pages 221-240. [Downloadable!]
Officer, R R, 1973. "The Variability of the Market Factor of the New York Stock Exchange," Journal of Business, University of Chicago Press, vol. 46(3), pages 434-53, July. [Downloadable!] (restricted)

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