Impact of Macroeconomics Variables on Stock Prices: Empirical Evidence in Case of KSE

Abstract

The purpose behind this study is to explore the correlation among the macroeconomics variables and share prices of KSE (Karachi Stock Exchange) in context of Pakistan. The study considers several quarterly data for different macroeconomics variables are as foreign exchange reserve, foreign exchange rate, industrial production index (IPI), whole sale price index (WPI), gross fixed capital formation (GFCF) and broad money M2. These variables are obtained from the period 1986-2008. The result shows that after the reforms in 1991 the influence of foreign exchange rate and foreign exchange reserve significantly affect the stock prices, while other variables like IPI and GFCF are insignificantly affect stock prices. The result also highlighted the internal factors of firm like increase in production and capital formation insignificant while external factor like M2 and foreign exchange affect positively. The study will be very helpful for national policy makers, researchers and corporate managers.