Abstract:
This study examines relationship of macroeconomic variables and volatility of stock
prices in three emerging markets Pakistan Stock Exchange. It gives an overview on stock
exchange and economics condition of country. It provides to develop a better understanding of
the impact macroeconomic fundamentals in developing countries India, Pakistan, and Sri Lanka.
In this research identify the effect of macroeconomic factors on stock market because stock
market plays an important role in country’s economy. The data is collecting from 1975 to 2010
for these three countries. One factor Stock market Index chooses as a dependent and three
domestic and international factors Inflation, GDP growth and Exchange rate choose as
independent. For examining a long term and short term relationship of these fundamental
macroeconomic variables with stock market applied statically technics. The result shows positive
or negative relationship among macroeconomics variables and stock prices. It’s investigated in
this study in both long run and short run. In individual results GDP growth rate is significant
only in case of India and affects positively the stock market. Exchange rate affects negatively the
stock market in India and positively in Pakistan but in case of Sri Lanka it does not affect
significantly. Inflation is significant and negatively affects the stock market only in case of Sri
Lanka but not in India and Pakistan.
