An Empirical Analysis of Causal Relationship between Stock Prices and Real Sector of the Pakistani Economy

9 Pages Posted: 27 Dec 2015

See all articles by Rizwan Ahmed

Rizwan Ahmed

Indus University

Jolita Vveinhardt

Vytautas Magnus University; Lithuanian Sports University

Yaseen Meeai

University of Karachi - Institute of Business Administration (IBA), Karachi

Date Written: November 12, 2015

Abstract

This paper determines the causal relationship between stock prices and the macroeconomic variables representing the real sector of the Pakistani economy. In order to substantiate the purpose annual data has been acquired from the websites of State Bank of Pakistan and Federal Bureau of Statistics, from the period of 1979 to 2013. Further to get the results Unit Root, Cointegration, Error correction model has been applied. Which indicate the presence of long term relation between stock prices and macroeconomic variables including gross domestic product (GDP), Consumption and Investment. Moreover, the result shows the existence of one-way causation between macroeconomic variables such as GDP, real consumption expenditure, and real investment expenditure. This one-way causation lead to the conclusion that the stock market of Pakistan is not developed to that extinct where it could influence GDP, real consumption expenditure, and real investment expenditure. Therefore, it is finally concluded that the stock market of Pakistan is not a leading indicator of any activity of economy.

Keywords: Macroeconomic variables, Stock Prices, Causal Relationship, Pakistani Economy

JEL Classification: E44, G1

Suggested Citation

Raheem, Ahmed and Vveinhardt, Jolita and Meeai, Yaseen, An Empirical Analysis of Causal Relationship between Stock Prices and Real Sector of the Pakistani Economy (November 12, 2015). Available at SSRN: https://ssrn.com/abstract=2708523 or http://dx.doi.org/10.2139/ssrn.2708523

Ahmed Raheem (Contact Author)

Indus University ( email )

ST-2D, Block 17, Gulshan-e-Iqbal
Gulshan-e-Iqbal
Karachi, Sindh 75300
Pakistan

Jolita Vveinhardt

Vytautas Magnus University ( email )

S. Daukanto 28
Kaunas, LT- 44254
Lithuania

Lithuanian Sports University ( email )

Sporto str. 6
Kaunas, LT-44221
Lithuania

Yaseen Meeai

University of Karachi - Institute of Business Administration (IBA), Karachi

University Road
Karachi, Sindh 75270
Pakistan

Register to save articles to
your library

Register

Paper statistics

Downloads
43
Abstract Views
410
PlumX Metrics