Macroeconomic Uncertainty and Stock Market Uncertainty: Some Further Evidence From Pakistan

Abstract

The paper provides an updated evidence of the linkage between stock market and macroeconomic factors in Pakistan. The sample period is from January 2011 to November 2017. Macroeconomic variables used are money supply, exchange rate, treasury bill rate, inflation and industrial production. Generalized autoregressive conditional heteroscedasticity (GARCH) models have been used to examine the impact of macroeconomic factors on stock market return and stock market volatility. Findings suggest that macroeconomic factors have an impact on stock market volatility. The fluctuations in inflation and money supply negatively influence the volatility of stock market returns. In contrast, industrial production positively affects the fluctuations of stock market returns. The findings are important for shareholders, investors, regulatory authorities and policymakers.

COVID-19 Entwined the Dynamic Relationship between Stock Returns and Macroeconomic Variables

“…Whereas, IPI and FDI Granger cause KSE unidirectionally and KSE Granger cause BS. The overall result regarding IPI granger cause KSE is supported by earlier research regarding the linkage between macroeconomic factors and the stock market in Pakistan from 2011 to 2017 revealed that industrial production positively impacts the fluctuations of stock market returns (Aziz et al, 2021). The results also reveal that interest rate is used as an important tool of monetary policy, which has a significant short-run impact on stock returns during COVID.…”

“…A study conducted on the impact of macroeconomic factors on stock return in the Nigerian stock market from 1998 to 2019 has found that industrial production has a positive and significant impact on stock return (Pole & Cavusoglu, 2021). Moreover, another research regarding the linkage between macroeconomic factors and the stock market in Pakistan from 2011 to 2017, also revealed that industrial production positively affects the fluctuations of stock market returns (Aziz, Marwat, & Mustafa, 2021).…”

“…COVID-19 initially reported in Dec 2020 in Wuhan, China. It surged chaos and economic uncertainty across the globe with its impact on every sphere including businesses, economies and individuals (Baker, Bloom, Davis, & Terry, 2020). The severity of the pandemic was equally stern as of the great depression; as it affected the global stock markets naming a few including Europe, Australia, America and Asia.…”

The short board effect of ESG rating and corporate green innovation activities

“…The cumulative amount of green loans from 21 significant Chinese banks reached US $1.69 trillion by the end of 2020, demonstrating the consistent and long-term advancement of Chinese businesses in their transition to becoming green and sustainable. Economic policy uncertainty leads to fluctuations in financial markets [ 12 ]. In order for businesses to accomplish high-quality transformation and sustainable development in an uncertain environment, green innovation is a crucial internal driving factor [ 13 ].…”