Abstract
This study examines that out of monetary shocks (∆M2) and real shocks in share prices (∆Yt-k), which one or both really explain share prices of Karachi stock exchange 100 index. The time series econometrics is used to investigate the data for the monthly period of January 1991 to January 2011 for money supply (M2) and share prices of KSE 100 index. The results of unit root test reveal that there is a real shock in share prices and it explains the share price of KSE 100 index temporarily, while Vector auto regression revealed that Share prices of KSE 100 index is meagerly explained by the monetary shocks.
Highlights
For several years, the economic effect of the supply of money on share prices has been argued in the literature of economics
This investigation focused on Money Supply and its fluctuations as the factors of oscillation in share prices in illumination of the recent volatility of Share prices of KSE 100 index in Pakistan
The stated oscillations and fluctuations which are so to speak as the bumps or the shocks are categorized as the real shocks and the monetary shocks are the primary findings of this research
Summary
The economic effect of the supply of money on share prices has been argued in the literature of economics. This subject has retrieved acceptance and admirations in the rouse of recent share market volatility in the United States. This unpredictability has compelled many policy makers to ponder over it since 1987 share market crash. The main manifesto of this study is to investigate which matters the most for share prices at KSE 100 from monetary shocks and real shocks
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