Impact of Macroeconomic Variables on Stock Prices: Empirical Evidence from Karachi Stock Exchange, Pakistan

  • Muhammad Nauman Khan
  • Sharif Zaman
Part of the Advances in Intelligent and Soft Computing book series (AINSC, volume 143)


Movement of stock indices is responsive to changes in macroeconomic fundamentals. The objective of this study is to find the relationship between macroeconomic variables and stock prices in Karachi Stock Exchange (KSE), Pakistan. The study considers annual data of several macroeconomic variables from 1998 to 2009: gross domestic product, exports, consumer price index, money supply M2, exchange rate, foreign direct investment and oil prices. The stationarity of data is checked through Augmented Dickey Fuller test. All variables are stationary at zero lag. Multiple regression analysis with Fixed Effects Model is then used. Results show that gross domestic product and exchange rate positively affect stock prices while consumer price index negatively affects stock prices. The results of export, money supply M2, foreign direct investment and oil prices were insignificant. This study will facilitate investors in taking effective investment decisions by estimating the expected trends in macroeconomic variables.


Stock prices Gross Domestic Product (GDP) Consumer price index (CPI) exports Money supply M2 Exchange Rate FDI Oil prices and Linear Multiple Regression and Correlation Model 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Mohammad, A.A., George, T.: Do Macroeconomic Variables Play any role in the Stock Market in Ghana? MPRA Paper No 9368, pp. 20–32 (June 24, 2008)Google Scholar
  2. 2.
    Adrangi, B., Chatrath, A., Sanvicente, A.Z.: Inflation, output, and stock prices: Evidence from Brazil. Journal of Applied Business Research 18(1), 61–76 (2002)Google Scholar
  3. 3.
    Diacogiannis, G.P., Tsiritakis, E.D., Manolas, G.A.: Macroeconomic factors and stock returns in a changing economic framework: The case of the Athens stock exchange. Managerial Finance 27(6), 23–41 (2001)CrossRefGoogle Scholar
  4. 4.
    Dimitova, D.: The Relationship between Exchange Rates and Stock Prices: Studied in a Multivariate Model Retrieved in Issue in Political Economy (2005)Google Scholar
  5. 5.
    Akmal, S.: Stock return and inflation in case of Pakistan. Pakistan Social and Development Review (2007)Google Scholar
  6. 6.
    Gay Robert, Jr., D.: Effect of Macroeconomic Variables on Stock Market Returns for Four Emerging Economies: Brazil, Russia, India, And China. International Finance and Economic Journal (2008) Google Scholar
  7. 7.
    Hasan, A., Tariq Javid, M.: An Empirical Investigation of the Causal Relationship Among Monetary Variables and Equity Market Returns. The Lahore Journal of Economics 14, 115–137 (2009)Google Scholar
  8. 8.
    Hussain, F., Mahmood, T.: The stock Market and the Economy of Pakistan. The Pakistan Development Review 40(2), 107–114 (2001)Google Scholar
  9. 9.
    Mehrara, M.: The relationship between stock market and macroeconomic variables: A case study for Iran. Iranian Economic Review 10(17) (Fall 2006)Google Scholar
  10. 10.
    Nishat, M., Shaheen, R.: Macroeconomic Factors and Pakistani Equity Market. The Pakistani Development Review 43(4) (2004)Google Scholar
  11. 11.
    Agrawalla, R.K.: Share prices and macroeconomic variables in India: An approach to investigate relationship between stock markets and economic growth, pp. 136–146 (2008) Google Scholar
  12. 12.
    Shahbaz, M., Nadeem, A., Liaquat, A.: Stock market development and economic growth: ARDL causality in Pakistan. International Research Journal of Finance and Economics (14) (2008) ISSN 1450-2887Google Scholar
  13. 13.
    Ahmed, S.: Aggregate economic variables in stock markets in india. International Research Journal of Finance and Economics (14), 141–164 (2008) ISSN 1450-2887Google Scholar
  14. 14.
    Mohammad, S.D., Hussain, A., Ali, A.: Impact of macroeconomic variables on stock prices: empirical evidence in case of KSE. European Journal of Scientific Research 38(1), 96–103 (2009) ISSN 1450-216X Google Scholar

Copyright information

© Springer-Verlag GmbH Berlin Heidelberg 2012

Authors and Affiliations

  1. 1.Institute of Management SciencesPeshawarPakistan

Personalised recommendations