Impact of Stock Prices on Macroeconomic Variables: Evidence from Pakistan
Keywords:Imports of Goods and Services, Exports of Goods and Services, Stock Prices
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.