Impact of Macroeconomic Variables on Stock Market : A Panel Study of Three Emerging Economics

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.