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Full Length Research Paper
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Causal relationship between macro-economic indicators and
stock exchange prices in Pakistan
Imran Ali1, 2*, Kashif Ur Rehman1,
Ayse Kucuk Yilmaz3,
Muhammad Aslam Khan4 and Hasan Afzal5
1IQRA
University, Islamabad, Pakistan.
2COMSATS
Institute of Information Technology Lahore, Pakistan.
3Department
of Aviation Management, School of Civil Aviation, Anadolu
University, 26470 Eskisehir, Turkey.
4Preston
University, Islamabad Campus, Pakistan.
5Independent Researcher, Hong Kong.
*Corresponding author. E-mail:
imranalinim@gmail.com.
Tel: 92 321 5041925. Fax: 92 42 9203100.
Accepted 17 December, 2009 |
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Abstract |
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Stock market plays an important role in the economic development
of a country. A number of studies have been investigated on the
causal relationship between macro-economic indicators and stock
exchange prices. But in the context of Pakistan, not many
studies can be traced in literature, moreover this study has
used the set of macro-economic indicators which has not been
previously used by researchers in Pakistan. It has examined the
causal relationship between macro-economic indicators and stock
market prices in Pakistan. The data from June 1990 to December
2008 have been used to analyze the causal relationship between
various macro-economic variables and stock exchange prices. The
set of macro-economic indicators includes; inflation, exchange
rate, balances of trade and index of industrial production,
whereas the stock exchange prices have been represented by the
general price index of the Karachi Stock Exchange, which is the
largest stock exchange in Pakistan. The statistical techniques
used include unit root Augmented Dickey Fuller test, Johansen’s
co-integration and Granger’s causality test. The study found
co-integration between industrial production index and stock
exchange prices. However, no causal relationship was found
between macro-economic indicators and stock exchange prices in
Pakistan. Which means performance of macro-economic indicators
cannot be used to predict stock prices; moreover stock prices in
Pakistan do not reflect the macro-economic
condition of
the country.
Key words:
Macro-economic indicators,
causality, exchange rate, index of industrial production,
inflation, money supply, Pakistan. |
