FOREIGN EXCHANGE RESERVES IMPACT ON KARACHI STOCK MARKET PERFORMANCE

Abstract

Purpose of the study: The purpose of this study is to identify the impact of foreign exchange reserves, home remittances and foreign direct investment on Karachi stock market’s performance. The study attempts to find out the individual impact of these independent variables on KSE-100 index and also the combined impact of these independent variables on KSE-100 index. Research method: Research approach for this study is deductive approach. The nature of the research is exploratory. Foreign exchange reserves, home remittances and foreign direct investment are the independent variables of the research whereas KSE-100 index is the only dependent variable of the research. The annualized secondary data has been picked up from the time period 1994-1995 to 2012-2013. The hypothesis are build to find out the impact of foreign exchange reserves on KSE-100 index, the impact of home remittances on KSE-100 index, the impact of foreign direct investment on KSE-100 index and the combined impact of foreign exchange reserves, home remittances and foreign direct investment on KSE-100 index. Findings of the research: The results of the hypothesis suggest that there is a positive relationship between foreign exchange reserves, home remittances, Foreign direct investment and KSE-100 index when these independent variables are analyzed individually but the combined impact of these independent variables on KSE-100 index shows that there is a positive relationship between home remittances, foreign direct investment and KSE-100 index but there is a negative relationship between foreign exchange reserves and KSE-100 index. Practical implications of the research: The findings of the research shows that there is a positive relationship between the independent and dependent variables when the independent variables are analyzed individually but when the independent variables are taken in combination to see their combined impact on KSE-100 index which is the dependent variable then foreign exchange reserves is the only independent variable that have a negative relationship with KSE-100 index, so it is very important for the investors, brokers, agents and governments to gauge the relationship between these macro economic variables with KSE- 100 index to predict the possible fluctuations in the stock market prices winch can enable them to make a better decision regarding their investments in the stock market.