The Influence of Macro-Economic Factors on Stock Prices of KSE 100 Index

International Journal of Research and Scientific Innovation (IJRSI) | Volume V, Issue XI, November 2018 | ISSN 2321–2705

The Influence of Macro-Economic Factors on Stock Prices of KSE 100 Index

Waqar Ahmed¹, Ahsan Aslam², Abdul Hakeem³

 ¹School of Commerce Minhaj University Lahore, Pakistan
²Commerce Department Superior University Lahore, Pakistan
³Management Sciences Department Bahauddin Zakariya University Multan, Pakistan

Abstract: The ultimate purpose of this research was to examine the influence of inflation, interest rate and exchange rate upon the stock prices of KSE 100 index of Pakistan. In this study the author has used the time series annually data of 25 years with the time period from 1993 to 2017and with the usage of this data there are four tests applied descriptive test, unit root test, Johansson co integration test and vector error correction model test. According to the results of the above mentioned tests there is no short term and long term significant relation between macro-economic factors (inflation, interest rate and exchange rate) and stock prices of KSE 100 index of Pakistan. Hence, the inflation, interest rate and exchange rate do not influence the stock prices of KSE 100 index of Pakistan stock exchange.

Key words: Inflation, interest rate, exchange rate, stock prices of KSE 100 index

I. INTRODUCTION

Macroeconomic factors affect the presentation of stock market. Many investors believe interest rates, exchange rate, inflation are extremely essential in the middle of these macroeconomic factors which influence the presentation of the market of stock. A huge number of researches have been carrying out to conclude the connection between macroeconomic factors and prices of stock in the very past. The result of these researches explains that there is very strong association between the macroeconomic factors and prices of stock. Some other studies have showed no connection between country’s economies and with financial markets of developing countries, like markets of Asia, (Fung, Lie, & Moreno, 1990)had explained it by telling that “macroeconomic variables cannot be trustworthy pointers for the price of stock market activities in the markets of Asia due to incapability of markets of stock to completely capture data regarding the vary in macroeconomic essentials.” A massive number of well-known researchers formeda connection in some countries like, between the macroeconomic pointers and financial market. The results of so many of studies had explained that with the minor amount of variation, the there will be connection between fundamental macroeconomic factors and process of stock market.

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