Impact of Macroeconomic Variables
| INTRODUCTION TO ECONOMETRICS | Macroeconomic Indicators | |
Abstract
The purpose of this report is to identify whether a relationship exists between macroeconomic variables and stock exchange returns in the Pakistani capital market. The techniques of multiple linear regression will be applied to understand if there is indeed a link between the two. The time series data being analyzed is on a monthly basis and spans from January 2003 to January 2009. The indicators taken as the independent variables are manufacturing production index, consumer price index, discount rate, broad money, foreign exchange, gold in million troy ounces, and the nominal effective exchange rate. KSE-100 index is going to function as a proxy for stock exchange returns in Pakistan. Capital markets have always helped economies to mobilize and channel capital to where it is needed most. In fact, capital markets have the capability to increase the efficiency of an economy and the effectiveness of Central Bank policy. However Pakistan happens to be one of the emerging economies and therefore its capital markets are still in the stage of development. Hence to establish a link between macroeconomic indicators and stock exchange returns is even more important in the Pakistani context.
Introduction
In both economic theory and practice, it is a known fact that saving leads to investment. And investment can impact the economy to such an explicit extent that its role cannot be over emphasized. The investors in the Pakistani market have a wide array of instruments and financial assets they can invest in ranging from bank accounts to shares of a publically traded company. However it is not a simple matter to invest in Pakistan, or for that matter anywhere else in the world.
A lot of time and effort is required to determine the fair value of a financial asset, not to mention, expertise and experience are pre requisites as well. It is necessary though, to point out right now, that there
Abstract
The purpose of this report is to identify whether a relationship exists between macroeconomic variables and stock exchange returns in the Pakistani capital market. The techniques of multiple linear regression will be applied to understand if there is indeed a link between the two. The time series data being analyzed is on a monthly basis and spans from January 2003 to January 2009. The indicators taken as the independent variables are manufacturing production index, consumer price index, discount rate, broad money, foreign exchange, gold in million troy ounces, and the nominal effective exchange rate. KSE-100 index is going to function as a proxy for stock exchange returns in Pakistan. Capital markets have always helped economies to mobilize and channel capital to where it is needed most. In fact, capital markets have the capability to increase the efficiency of an economy and the effectiveness of Central Bank policy. However Pakistan happens to be one of the emerging economies and therefore its capital markets are still in the stage of development. Hence to establish a link between macroeconomic indicators and stock exchange returns is even more important in the Pakistani context.
Introduction
In both economic theory and practice, it is a known fact that saving leads to investment. And investment can impact the economy to such an explicit extent that its role cannot be over emphasized. The investors in the Pakistani market have a wide array of instruments and financial assets they can invest in ranging from bank accounts to shares of a publically traded company. However it is not a simple matter to invest in Pakistan, or for that matter anywhere else in the world.
A lot of time and effort is required to determine the fair value of a financial asset, not to mention, expertise and experience are pre requisites as well. It is necessary though, to point out right now, that there
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