Macroeconomic Variables Impact on Stock Market Performance in the Short & Long Run: A Pakistan Perspective

Muhammad Ans Umer


This study, based on 128 monthly observations, examines the impact of 11 macroeconomic variables on stock market performance in short and long run. The Johansen’s Co-integration test, Granger Causality test and Correlations test are used for empirical purposes. The timespan of study range from January 2005 to August 2015. The results states positive long run relationship between Stock Index and CPI, Money supply and oil prices. The negative long run relationship is found between stock returns and Exchange Rate, Foreign exchange reserve, Gold prices and Interest rate. However the results of Foreign Direct Investment, Index of industrial production, Imports and Exports are found insignificant for Johansen’s Co-integration. The Granger causality results states that causality runs from exchange rate to Index to FDI, Foreign exchange reserve, interest rate and exports. The only bidirectional causality is found between Crude oil prices and Index. To conclude, Stock index shows short and long run relationship with macroeconomic indicators and these can be used to predict each other.

Keywords: Johansen’s Co-integration test, Granger Causality test, Karachi Stock exchange, Macroeconomic Variables

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