Empirical Study on Impact of Macroeconomic Indicators, Digital Inclusion and Global Market on Pakistan Stock Exchange

Abstract

Pakistan stock exchange has increased by 47062 point or 75.36% since the beginning of 2024.The empirical study examines the impact of macroeconomic indicators, digital inclusion and global index on the performance of Pakistan Stock Exchange (PSX). The study has significant contributions to the economic and financial theory. It validates interdependence theory, liquidity theory and financial inclusion framework especially in the context of a developing market. The study also highlights the critical role of digitalization in development of financial inclusion and enhancement of market accessibility. The study relies on the annual data which spans from 1992 to 2023 and employs machine learning model i.e. the Kernel Regularized Least Squares (KRLS) model which is robust in non-parametric approach and the model is capable of handling complex and non-linear relationships among variables. Autoregressive Distributed Lag (ARDL) model is additionally used for testing of robustness, reliability and consistency of results. Empirical findings of the model indicate that Broad Money (M2), Digital Inclusion, and the S&P 500 index have a statistically significant and positive impact of on PSX performance. Liquidity is increased due to growth of M2 which enhances market activity. Digital inclusion expands participation and accessibility of investors and also reflects the transformative role of technology in capital market of Pakistan. S&P 500 is taken as global benchmark which highlights the sensitivity of Pakistan Stock exchange to the sentiment of international investor and prevailing trends of global market. Manufacturing Value Addition (MVA) shows statistically insignificant and weak relationship with Pakistan Stock exchange however there is a notable exception in its upper quartile which indicates positive influence. This phenomenon that suggests there are structural inefficiencies in industrial sector of Pakistan which limit the overall contribution of industrial manufacturing to the stock market performance. From the perspective of policy, the findings of the study highlight the need for rational monetary through calculated open market operations policy frameworks in order to ensure sustainable liquidity growth, adequate investments in development of digital infrastructure that can further lead to expand financial inclusion. Improvement of investor’s confidence and corporate governance style is essential to bridge the gap between manufacturing sector performance and PSX dynamism.