Impact Of Macroeconomic Variables On Stock Market In Pakistan

The research study shows that macroeconomic variables have a significant impact on the stock market.Macroeconomic variables,which are GDP unemployment and inflation in economic growth,have a great influence on rapid change in the stock market.FDI and GDP are the main strengthening of Pakistan's economy.Pakistani Government has failed to abstract the foreign direct investment up to that extent because favorable investment conditions and basic relevant necessities do not exist.Consequently,foreign direct investment and GDP in Pakistan has declined for two decades as per data obtained and collect from the relevant source.We also investigate the effects of interest rates,exchange rates,and inflation rates on the stock market performance of Pakistan by using annual time series data covering the 1991-2017 periods.The prime intention of this research was to inspect the long-run and short-run relationships between the KSE-100 index and macroeconomic variables by employing the econometric techniques of Autoregressive Distributed Lag(ARDL)bounds testing procedure to cointegration and the Error Correction Model(ECM),respectively.By applying the ARDL model,the empirical results revealed the fact that there was a negative and significant impact of interest rate on the market index,whereas;the exchange rate and the inflation rate have a positive impact on stock market volatility in the long-run.Furthermore,the ECM analysis pointed out that an estimated coefficient of the error correction term was significant with an expected negative sign and showed that 46.53%deviation of the stock market index is corrected in the short-run per year.The study recommended that the monetary authorities should further reduce the bank rate up to the lowest rate to stimulate the stock market performance,which in turn;will boost the current investment level and will encourage the new investment into the stock market.Also,this policy will also ensure the reduction of higher inflation rates.And the study found that the reduction in bank rate and stabilization in the exchange rate is essential to local and foreign investors in the short-run.It is observed that GDP,FD,IR,and Exchange Rate had a direct effect on the stock market boom or recession.the exchange rate is essential to local and foreign investors in the short-run.It is observed that GDP,FD,IR,and Exchange Rate had a direct effect on the stock market boom or recession.As a result of this analysis,it is proved that GDP,FD,IR,and Exchange Rate having a positive relationship with the stock market.