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Monetary Expansion and Stock Returns in Pakistan

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  • Husain, Fazal
  • Mahmood, Tariq

Abstract

The objective of the paper is to examine the causal relationship between money supply and stock prices in Pakistan. Two measures of money stocks (M1 and M2) and six stock price indices (general and five sectors) were taken for the period June 1991 to June 1999. The co-integration analysis indicates a long run relationship between stock prices and money supply for both M1 and M2. The Error Correction Model, on the other hand, does not endorse the long run relationship between stock prices and M1. Regarding long run relationship between stock prices and M2, the model suggests a unidirectional causality running from M2 to stock prices. The model also shows the evidence of short run effects of M2 on stock prices. The analysis suggests that the stock market is not efficient with respect to money supply.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5020.

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Date of creation: 1999
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Publication status: Published in The Pakistan Development Review 4.38(1999): pp. 769-776
Handle: RePEc:pra:mprapa:5020

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Keywords: : Money; Stock Prices; Pakistan; Long Run Relationship; Market Efficiency;

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References

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  1. 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.
  2. 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.
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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. "The impact of money supply on stock prices and stock bubbles," MPRA Paper 40919, University Library of Munich, Germany.
  3. Sirucek, Martin, 2012. "Macroeconomic variables and stock market: US review," MPRA Paper 39094, University Library of Munich, Germany.

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