The Nexus Between Macroeconomic Variables and Pakistan Equity Market Index

Abstract

The equity market is a composite indicator of a country's economy. When analyzing the equity market, researchers usually came with sort of dilemma, specifically when data are not all organized at the same frequency. Most macroeconomic data are sampled on monthly (e.g., Inflation) or annually (e.g., Gross Domestic Product), whereas most financial variables (e.g., Equity Market Return) are sampled daily or even more frequently. Hence, it becomes very fascinating to analyze whether one can use low frequency macroeconomic variables in order to predict equity market. The core aim of this study is to shed light on the impact on long run and short-run relationships among macroeconomic variables and Pakistan’s equity market by employing mixed frequency data for the period 2011 to 2021. The variables may be contributed to equity market return (PSX), gross domestic product (GDP), interest rate (INTR), inflation (CPI), gold price (GP) and exchange rate (EXR) Oil prices (OIL). Unit root test is used for stationarity test; using the MIDAS model to nexus Pakistan equity market returns at different frequencies.