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Macroeconomic Factors and Pakistani Equity Market

Author

Listed:
  • Mohammed Nishat

    (Institute of Business Administration, Karachi.)

  • Rozina Shaheen

    (Institute of Business Administration, Korangi Creek, Karachi.)

Abstract

This paper analyzes long-term equilibrium relationships between a group of macroeconomic variables and the Karachi Stock Exchange Index. The macroeconomic variables are represented by the industrial production index, the consumer price index, M1, and the value of an investment earning the money market rate. We employ a vector error correction model to explore such relationships during 1973:1 to 2004:4. We found that these five variables are cointegrated and two long-term equilibrium relationships exist among these variables. Our results indicated a "causal" relationship between the stock market and the economy. Analysis of our results indicates that industrial production is the largest positive determinant of Pakistani stock prices, while inflation is the largest negative determinant of stock prices in Pakistan. We found that while macroeconomic variables Granger-caused stock price movements, the reverse causality was observed in case of industrial production and stock prices. Furthermore, we found that statistically significant lag lengths between fluctuations in the stock market and changes in the real economy are relatively short.

Suggested Citation

  • Mohammed Nishat & Rozina Shaheen, 2004. "Macroeconomic Factors and Pakistani Equity Market," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 619-637.
  • Handle: RePEc:pid:journl:v:43:y:2004:i:4:p:619-637
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Shahid Raza & M. Ali Kemal, 2017. "Daily Stock Market Movements: From the Lens of News and Events," Working Papers id:12188, eSocialSciences.
    2. repec:eco:journ1:2017-04-02 is not listed on IDEAS
    3. Ahmet Ozcan, 2012. "The Relationship Between Macroeconomic Variables and ISE Industry Index," International Journal of Economics and Financial Issues, Econjournals, vol. 2(2), pages 184-189.
    4. repec:blg:journl:v:12:y:2017:i:1:p:61-78 is not listed on IDEAS
    5. Joseph Ato Forson & Jakkaphong Janrattanagul, 2014. "Selected Macroeconomic Variables and Stock Market Movements: Empirical evidence from Thailand," Contemporary Economics, University of Finance and Management in Warsaw, vol. 8(2), June.
    6. repec:mth:ber888:v:7:y:2017:i:1:p:177-188 is not listed on IDEAS
    7. Isma Zaighum, 2014. "Impact of Macroeconomic Factors on Non-financial firms Stock Returns: Evidence from Sectorial Study of KSE-100 Index," Journal of Management Sciences, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(1), pages 35-48, March.
    8. Pooja Joshi & A K Giri, 2015. "Dynamic Relations between Macroeconomic Variables and Indian Stock Price: An Application of ARDL Bounds Testing Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 5(10), pages 1119-1133, October.
    9. Ben Yaala, sirine & Henchiri, jamel E., 2016. "Impact of Macroeconomic and Demographic Variables on the Stock Market: Evidence from Tunisian Crisis," MPRA Paper 76783, University Library of Munich, Germany.
    10. Shahid Raza & M. Ali Kemal, 2017. "Daily Stock Market Movements: From the Lens of News and Events," PIDE-Working Papers 2017:146, Pakistan Institute of Development Economics.
    11. Cyrus Mutuku & Kirwa Lelei Ng¡¯eny, 2015. "Macroeconomic Variables and the Kenyan Equity Market: A Time Series Analysis," Business and Economic Research, Macrothink Institute, vol. 5(1), pages 1-10, June.
    12. Muhammad Shahbaz & Faridul Islam & Ijaz Ur Rehman, 2016. "Stocks as Hedge against Inflation in Pakistan: Evidence from ARDL Approach," Global Business Review, International Management Institute, vol. 17(6), pages 1280-1295, December.
    13. Arshad Hasan & M. Tariq Javed, 2009. "An Empirical Investigation of the Causal Relationship among Monetary Variables and Equity Market Returns," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(1), pages 115-137, Jan-Jun.

    More about this item

    Keywords

    Financial Market; Pakistan; Stock Market;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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