Effect of Innovative Financial and Macroeconomic Variables on Stock Market of Pakistan

Abstract

This paper has been profound on the effect of Financial and Macroeconomic variables on stock market Returns using Time series analysis over the period June 2010-July2020. The study primarily focuses on the long-term relationship between monetary indicators and Stock market returns. This Quantitative research finds the different results on Demand and supply of various Economies by using various financial factors, including the Interest rate (as a proxy of the Treasury bill rate), Money supply, exchange rates, Inflation rate, exports, and work remittances. The research contains ten years of monthly data to evaluate the relationship between the KSE -100 index (as a proxy of stock return) and four macroeconomic variables; Treasury bills, six calendar month charges, Exchange rates, Inflation, and Currency stock. Correlation analysis shows that money supply had a significant positive relationship. On the other hand,
Inflation, Treasury bills, and Exchange rates had a significant negative impact on stock market returns. The data also are analyzed from regression and Co-integration to evaluate the positive, negative and longterm relationship of financial and macroeconomic variables on stock market return in Pakistan. This research is helpful for corporate managers, Policymakers, and investors to provide insight into the stock market's risk and return.