THE IMPACT OF INTEREST RATE ON STOCK PRICES

Abstract

Purpose-This research paper was an endeavor to make a model, to find out the connection involving stock market and interest rate (Pakistani market) and to run certain tests related to statistical analysis. These tests run with the help of yearly end closing stock prices of Karachi Stock Exchange and interest rates of previous ten years i.e. Jan 2003 to Dec 2013. Regression analysis and descriptive analysis were run to find out the blow of interest rate on stock market of Pakistan. Performance of Pakistani Stock market is highly dependent on political situation. The most important factor of any country’s economy is its Stock market. Methodology-The research is being conducted in order to find out if there is any relationship between interest rate in prevailing economy and stock prices in Karachi stock exchange therefore, the research design for study is qualitative “Exploratory research”. For the purpose of analysis SPSS tools is used . Based on the literature Hypothesis would be developed in order to make sure the adoptability of aim and objective of the research. Finding-There are three different model which have negative and positive impact on stock markets. Here I am considering one model that has impact these are inversely related with each other i.e. one percent increases in inflation increase stock index by .83% .one percent increase in the last year value of stock index increase current year stock index by 0.623%. interest rate and its impact on stock prices I have find out the fact that there exists a negative kind of relationship between stock returns and the interest rates. Although the settlement of interest rates are defined and formulated by the central banking authority the SBP but it can harm the economy as a whole because, Pakistani economy has always been in the transition phase.