Abstract:
Numeral studies have been carried out by Linter (1975), Fema and Schwert (1977), Fama (1981, 1982), Geske and Roll (1983) and Caporale and Jung (1997) to investigate fundamental relationship between macroeconomic variables and the returns of stock market as all they found a negative association between real stock returns and inflation in US and European stock markets. Same was observed by Hatrath and Ramchander (1997) and Hu and Willett (2000) in India and Pakistan by Ahmed and Mustafa (2004). Nishat and Irfan (2001) and (Adam at all 2008) presented the almost identical view that macroeconomic factors cause the change in stock exchanges and liquidity and risk based sharing accelerate the overall growth line of economy.
