RELATIONSHIP IN STOCK MARKET RETURNS AND THE MACROECONOMIC FACTORS IN PAKISTAN

Muhammad Arshad Sial; Muhammad Imran Khan; Rafaqet Ali

Muhammad Arshad Sial Lecturer Department of Commerce University of Sargodha, Mianwali
Muhammad Imran Khan Assistant Professor Department of Management Science COMSAT Vehari
Rafaqet Ali Assistant Professor Department of Management Science COMSAT Vehari

Keywords: Equity Market, Macroeconomic Factors, Economy, KSE 100 Index

Abstract

The aim of the research to discover the long-term and cause and effect relationship amid set of macroeconomic indicators and KSE-100 index return regarding Pakistan. Macroeconomic factors of study are exchange rate, inflation rate, interest rate, gold prices and oil prices. Tow co-integration vectors has found in multivariate co-integration test. Bi-variate co-integration test outcome indicate that long-term co-integration exits between KSE-100 Index and inflation rate and KSE-100 and Oil prices. Result of pair wise granger causality test reports that causality relationship exists between KSE-100 Index and macroeconomic factors except gold prices. Variance decomposition analysis shows variance due to own shocks.