Impact of Stock Prices on Macroeconomic Variables: Evidence from Pakistan
Kamran Khan
Research Associate, Khadim Ali Shah Bukhari Institute of Technology, Karachi
Israr Ahmed
Lecturer, Khadim Ali Shah Bukhari Institute of Technology, Karachi
Abstract
It is considered that a stock market of any country is a
predictor of economic variables. Changes in stock market
reflect in future economic activities. Pakistani stock
markets are generally criticized by the various analysts
that they are not based on true fundamentals and behave
on speculations. It has seen in the past that on
different occasions the stock markets observes major
decline in conditions when the economy was showing
upward trend and vice versa. This particular study
intended to identify the basis of Pakistani stock market
and its ability to predict about the economy. The aims
are to study those variables that determine the role of
stock market in economy. Previous studies have shown
almost the same results that, there are no long term
effects of stock prices on macroeconomic variables.
Stock Prices is our independent variable, Whereas,
Imports and Exports of Goods and Services are dependent
variable for this research. Regression analysis is used
to test the hypothesis. Secondary data is obtained from
stock market, Federal Board of Revenue and from State
Bank of Pakistan (www.sbp.org.pk). Sample period
consists of 5-year period beginning at the start of 2005
and ending at the close of 2009. There are different
stock markets working in Pakistan but the focus of this
research is Karachi Stock Exchange (KSE) which is
considers as a biggest stock market from all aspects.
The results suggested that there is a relationship
between fluctuation of stock prices and the economic
indicators and hence in Pakistani scenario it can be
said that Pakistani stock markets are also the true
predictor of economic activities.
Keywords: Imports of Goods and Services,
Exports of Goods and Services, Stock Prices
JEL Classification: A20, A21
