Shocks in Macroeconomic Variables and Stock Market Stability: Case Study of KSE-100 Index

Asmat Ullah (), Syed Waqar Hussain, Zahoor Khan and Rafiq Muhammad
Additional contact information
Asmat Ullah: Institute of Management Sciences, Peshawar
Syed Waqar Hussain: Institute of Management Sciences, Peshawar
Zahoor Khan: University of Peshawar, Peshawar

Business & Economic Review, 2011, vol. 3, issue 2, 154-163

Abstract: This study was conducted to quantify the stability impacts of shocks in leading macroeconomic variables on Karachi Stock Exchange (KSE)-100 index using annual data from 2000-2010. Four macroeconomic variables, Average annual exchange rate (EXR), inflation rate CPI based (INFR), real GDP growth rate (RGDP) and unemployment rate (UEMR), have been used. Dynamic Distributed lag (DDL) model was selected after experimenting on different forms and specifications. Selections were based on recent advance measure of co-integration i.e. “Bonds Testing” proposed by (Pesaran, Shin, & Smith, 2001) which can be applied even on small number of observations. Based on empirical analysis, inflation rate (CPI based) and unemployment rate (UMER) were dropped due to its insignificance in the present context. Major findings of this study includes that shocks in current index of Karachi stock exchange are due to, other factors constant, one period lag shocks in its own index, real GDP and average annual exchange rate. Whereas current GDP growth has strong significant impact compared to one period lag GDP. So our main conclusion is that, shocks in KSE-index to some extent can be controlled by stabilizing main macroeconomic variables such as Real growth rate of GDP, exchange rate even its own stability (i.e. stability of KSE-100 index) have also significant lesson for its future stability

Keywords: Stock exchange; KSE-100; unemployment; inflation rate; real GDP (search for similar items in EconPapers)
JEL-codes: G10 G21 G32 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://imsciences.edu.pk/files/journals/Vol.%203%2 ... %20Aamat%20Ullah.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bec:imsber:v:3:y:2011:i:2:p:154-163

DOI: 10.22547/BER/3.2.3

Access Statistics for this article

More articles in Business & Economic Review from Institute of Management Sciences, Peshawar, Pakistan Institute of Management Sciences 1-A, Sector E-5, Phase VII, Hayatabad, Peshawar- Pakistan. Contact information at EDIRC.
Bibliographic data for series maintained by Dr. Attaullah Shah ().