Macroeconomic variables and their impact on stock prices in Pakistan

ABSTRACT: Stock markets are key indicator of economy and play significant role in attracting investments and change in macroeconomic variables affect the performance of stock markets. This study determines the impact of important macroeconomic variables on performance of Pakistan Stock Exchange (PSX). The macroeconomic variables used in this study are inflation, interest rate, foreign exchange rate, crude oil prices and GDP (Gross Domestic Product). This study used KSE-100 Index to represent PSX, while consumer price index is used to represent inflation. In addition to descriptive statistics, multiple regression analysis is used to identify the long-term relationship of macroeconomic variables with returns of PSX. The study used monthly time series data from 2006 to 2018. The study has found positive returns of stock market in Pakistan. The results show that foreign exchange rate has positive impact on stock market. Crude oil prices also show positive relationship with stock market, while other variables including inflation, interest rate and GDP have negative impact on performance of Pakistan Stock Exchange. A good and properly implemented monetary policy by State Bank of Pakistan can positively influence the stock exchange by controlling the negative effects of interest rate.


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FULL ISSUE 2020, Vol 1, Issue 1

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