Impact of Macro Economic Variables on Stock Prices in Pakistan

Abstract

This paper analyzes the “impact of macro economic variables on the stock prices in Pakistan”. The macroeconomic variables are represented by the inflation, interest rate, GDP, domestic and foreign investment, industrial production, unemployment and money supply. All the macro economic variables have positive relation with each other as the Cronbach's Alpha Based on Standardized Items is greater then 0.500. The SPSS based result shows that all the mentioned macroeconomic variables have their impact on stock prices. We found that change in interest rate have greater effect than all other macroeconomic variables. Inflation indirectly affects stock prices and it first influences financial institutions. GDP also have strong impact on stock prices as it indicates the overall growth in economy. Industrial production affects stock prices of almost all stocks. Money supply also has more effect on stock prices than other macro economic variables.