Journal of Finance and Economics
ISSN (Print): 2328-7284 ISSN (Online): 2328-7276 Website: Editor-in-chief: Suman Banerjee
Open Access
Journal Browser
Journal of Finance and Economics. 2019, 7(2), 52-61
DOI: 10.12691/jfe-7-2-2
Open AccessArticle

Role of Sovereign Indicators in Performance of Stock Market of Pakistan

Jahanzaib Alvi1, , Muhammad Rehan1 and Saad Khatri1

1Mohammad Ali Jinnah University, Department of Management Sciences Karachi, Pakistan

Pub. Date: March 12, 2019

Cite this paper:
Jahanzaib Alvi, Muhammad Rehan and Saad Khatri. Role of Sovereign Indicators in Performance of Stock Market of Pakistan. Journal of Finance and Economics. 2019; 7(2):52-61. doi: 10.12691/jfe-7-2-2


The rationale of this research is to determine the influence of macroeconomic indicator (Interest Rate, Inflation Rate, and Exchange Rate) on KSE-100 Returns, 6 month Karachi Interbank Offered Rate (KIBOR) is taken as proxy of the interest rate, Consumer Price Index (CPI) is taken as proxy of the inflation rate, PKR to Dollar rate is take as representative of the exchange rate, the aim of this study is that, how Macroeconomic factors impact equity returns of the stock market in this research the time series data of 14 years was selected from January 30 2004 to February 10 2017 on monthly basis, whereas in this tenor the data of financial crisis is also included, Multiple Regression model is examined to test the hypothesis, entire data is collected from the reliable source, to test the multiple regression, software EVIEWS version 9.0 is used, the findings reveal that there is weak relationship between the Independent variables & Dependent Variable variables, however inflation rate have insignificant negative correlation with KSE-100 returns, interest rate and exchange rate both have negative significant relationship with KSE-100 returns, while investing into stock market of Pakistan investor must considered interest rate and exchange rate to earn lucrative profit, due to lake of resource this research could not cover the entire economic indicators and also could not stretched the tenor of 13 years, if any future research is conducted, so more variables can be taken to generate better results.

interest rate inflation rate exchange rate KSE-100 Index KIBOR

Creative CommonsThis work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit


[1]  Khan, Z., Khan, S., Rukh, L., Imdadullah, K., & Rehman, W. (2012). Impact of interest rate, exchange rate and inflation on stock returns of KSE 100 index. International Journal of Economics and Research, 3(5), 142-155.
[2]  Bashir, A., & Hassan, A. (1997). Interest Rate Sensitivity and Stock Returns in the United Arab Emirates. Journal of King Saud University, 9, 79-89.
[3]  Nishat, M., Shaheen, R., & Hijazi, S. T. (2004). Macroeconomic Factors and the Pakistani Equity Market [with Comments]. The Pakistan Development Review, 619-637.
[4]  Ali, T. M., Mahmood, M. T., & Bashir, T. (2015). Impact of interest rate, inflation and money supply on exchange rate volatility in Pakistan. World Applied Sciences Journal, 33(4), 620-630.
[5]  Mbulawa, S. (2015). Effect of macroeconomic variables on economic growth in Botswana.
[6]  Muriuki, K. (2014). The effect of inflation and interest rates on stock market returns of firms listed at the Nairobi securities exchange. Unpublished master’s thesis. University of Nairobi.
[7]  Thang, F. (2009). Impact of interest rate and exchange rate on the stock market index in Malaysia: a cointegration analysis. Unpublished master’s thesis, Universiti Sains, Penang, Malaysia. Retrieved from pdf.
[8]  Kanwal, S., & Nadeem, M. (2013). The impact of macroeconomic variables on the profitability of listed commercial banks in Pakistan. European journal of business and social sciences, 2(9), 186-201.
[9]  Maysami, R. C., Loo, S., & Koh, T. (2004). Co-movement among sectoral stock market indices and cointegration among dually listed companies. Jurnal Pengurusan, 23, 33-52.
[10]  Hyde, S. (2007). The response of industry stock returns to market, exchange rate and interest rate risks. Managerial Finance, 33(9), 693-709.
[11]  Blanchard, O. all. (1981). Findings, the Stock Market, and Interest Rates. The American Economic Review, 71 (1), 132-143.
[12]  Kaul, G. (1987). Stock Returns And Inflation. Journal of Financial Economics, 18 (1), 253-276.
[13]  Anderson, J. M. (1990). Micro-macro linkages in economic models. Microsimulation techniques for tax and transfer analysis. Urban Institute, Washington, DC.
[14]  Lobo, B. J. (2000). Asymmetric Effects of Interest Rate Changes on Stock Prices. The Financial Review, 35, 125-144.
[15]  Devereux, M. Lane, B. (2006), Exchange Rate and Monetary Policy Emerging Market Economics, The Economic Journal, 478-506.
[16]  Khrawish, H. A., Siam, W. Z., & Jaradat, M. (2010). The relationships between stock market capitalization rate and interest rate: Evidence from Jordan. BEH - Business and Economic Horizons, 2 (2), 60-66.
[17]  Rano, S. U., & Bayero, A. (2010). Does inflation has an impact on Stock Returns and Volatility? Evidence from Nigeria and Ghana. 1-17
[18]  Mundell, R. (1963). Inflation and real interest. Journal of Political Economy, 71(3), 280-283.
[19]  Aydemir, O., & Demirhan, E. (2009). The relationship between stock prices and exchange rates: Evidence from Turkey. International Research Journal of Finance and Economics, 23(2), 207-215.
[20]  Muhammad, N., Rasheed, A., & Husain, F. (2002). Stock prices and exchange rates: Are they related? evidence from south asian countries [with comments]. The Pakistan Development Review, 535-550.
[21]  Chaudhry, M. A., & Young, R. A. (1990). Economic impacts of alternative irrigation water allocation institutions: Pakistan's warabandi system. Economic impacts of alternative irrigation water allocation institutions: Pakistan's warabandi system., 395-410.