Nexus Between Discount Rate and Industrial Performance

Abstract

This study investigates the short-run responses and long-run performances of seven industries’ stock indices with discount rate changes in the firms listed in the Pakistan Stock Exchange (PSE) between 2009 and 2018. The results indicate that short-run returns react positively to discount rate reduction, excluding the oil industry and vice versa. Therefore, long-term performance responds favourably with a reduction in the discount rate. Discount rate changes affect the apparel industry the most, while the oil industry is the least on the list. This study serves potential investors for their returns against investment among these industries. Furthermore, it works as a guideline for regulators and policymakers to manage fluctuations for a stable capital market.

Macroeconomic NEWS and Capital Market Reaction: A Case of a Developing Country

“…The retort of the financial market with respect to the change in the discount rate depends upon the purpose behind the unexpected change. The return can differentiate by changing the discount rate, but it also depends upon the firm, whether the firm is large or small (Khan, 2021). The previous study revealed that the stock prices are strongly affected by macroeconomic announcements, e.g., changes in monetary policy, discount rate, and announcements about inflation.…”