Impact of Macroeconomic Variables on Stock Returns of Banking Sector in Pakistan

Abstract

The study is conducted to measure the impact of selected macroeconomic variables on stock returns of the banking sector in Pakistan from the Pakistan Stock Exchange. Annual data covering the ten-year period from 2013 to 2023 is used in this analysis. The selected macroeconomic variables are inflation rate,, exchange rate, GDP growth rate, political stability, absence of violence, and foreign direct investment, which are independent variables. Market capitalization is a control variable, and the dependent variable is the stock returns of the banking sector. On the basis of time series data, the panel regression technique, PLS is used to examine and analyze the significance of data and to ascertain how various factors affect stock returns. To determine the relationship between every variable, the correlation matrix technique is used. The results of this study demonstrate that while the inflation rate has a negative and significant relationship with stock returns, the GDP growth rate, exchange rate, political stability and lack of violence, and foreign direct investment have a positive and significant relationship with stock returns of the banking sector in Pakistan.