MACROECONOMIC VARIABLES & ITS IMPACT ON KSE -100 INDEX BY MUHAMMAD SALMAN KHAN ABSTRACT
Stock exchange or secondary market plays pivotal role of an economy. From it one can easily guess the overall economy of the county. From various factors, stock market is dependent and the impacts of these factors are clearing i.e. positive or negative. Macroeconomic variables in economy that influence the stock exchange and macroeconomic variables that affect the stock prices of any state are Government policies, exchange rates, inflation, money supply, interest rate, foreign direct investment, law & order situation, political instability, security problems (terrorist attacks) Gross domestic product growth rate, judiciary crises. Foreign AID is also incredibly vital for the economy of Pakistan and stock market. For this purpose to find out the impact of macroeconomic variables on stock exchange, four unlike variables are supposed to study i.e. exchange rates, interest rates, inflation and GDP (Gross domestic product). Year on year data of 19 consecutive years acquired for the research. For concluding results, statistical tools i.e. multiple regressions and Pearson’s correlation models are used. The study shows (80%) variation in the dependent variable has explained by the independent variable. Therefore, the model is good fitted and there is a strong relationship between dependent and independent variables, variation in the stock prices explained up to (80%) by the variation in the independent variables. The study result shows direct and positive correlation between macroeconomic variables like exchange rate, inflation and GDP (Gross domestic product) growth rate with stock prices of KSE-100 index while negative impact found on the stock prices of KSE-100 index of the interest rate.
Impacts of micro and macroeconomic variables were extremely significant for the researchers in olden times. Researchers, economists and students have attempted a lot for several years for discovering the relationship between macro economic factors and stock prices. Many factors which leads to change in the stock prices. These purpose, researchers have applied different models in the fascination to discover the relationship between macro economic variables and stock prices of stock exchange. Therefore, the importance of the study increases because of the search to discover the impact of macroeconomic factors on the prices of the stock index. Dealing of the stocks takes place in
Macroeconomic Variables & Its Impact on KSE -100 index
the stock market. Therefore, stock market plays very important rule in the development of an economy and acts like intermediary. In the secondary stock market, Securities traded. In the stock market, security is primarily the conversion of funds. Stock markets provide investment opportunity. Change in stock exchange index causes disturbance in the macroeconomic factors (Adam at all 2008). Stock market by liquidity and risks sharing, accelerate the economic growth. The increase and decrease in stock prices is an understandable phenomenon of economies among the investors, corporation, policy makers and researcher. Market forces i.e. demand and supply, determined the stock prices, and if supply equal to demand of seller, at that position stock price is fixed. Researchers are trying to discover the factors, which influence stock prices. The core macroeconomic variables are inflation, industrial production index, interest rate, gross domestic product, export, exchange rate, money supply, foreign exchange reserves and unemployment has causality with prices index of stock exchange (Booth 1997 and Chan 2003). The study of Adam et al (2008) concluded that fluctuations in macroeconomic variables, which leads to the change the structure of stock exchange index. The government polices whether it is fiscal or monitory have a greater influence on the economic...