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Macroeconomic Uncertainty of the 1990s and Volatility at Karachi Stock Exchange

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  • Dawood Mamoon
  • Eatzaz Ahmad

Abstract

This paper examines the short- to medium-term trends and volatility in Karachi Stock Exchange (KSE) and further explores the nature of relationship between stock market activities and a set of macroeconomic variables in the 1990s. The analysis is based on daily and monthly data on general stock price index and trading volume and monthly data on interbank call rate, wholesale price index, quantum index of manufacturing sector’s output and monetary aggregate M2, and it covers the period from January 1992 to June 1999. This paper finds that in the 1990s, the stock market of Karachi had become more volatile both on short-term (daily) and medium-term (monthly) basis. Furthermore, strong volatility inertia was present in stock price index, trading volume, wholesale price index, manufacturing output and money supply. It also finds that there is no systematic relation between stock price volatility and real or nominal macroeconomic volatility. Likewise, for the sample period, a volatile trading volume was neither due to a volatile stock price nor due to the fluctuations and shocks taking place in the economy.

Suggested Citation

  • Dawood Mamoon & Eatzaz Ahmad, 2008. "Macroeconomic Uncertainty of the 1990s and Volatility at Karachi Stock Exchange," The IUP Journal of Financial Economics, IUP Publications, vol. 0(3), pages 7-28, September.
    • Handle: RePEc:icf:icfjfe:v:06:y:2008:i:3:p:7-28
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    References listed on IDEAS

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    1. Ayaz Ahmed, 1998. "Stock Market Interl inkages in Emerging Markets," PIDE-Working Papers 1998:159, Pakistan Institute of Development Economics.
    2. Jamshed Y. Uppal, 1993. "The Internationalisation of the Pakistani Stock Market: An Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 605-618.
    3. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-1153, December.
    4. Schwert, G William, 1990. "Stock Returns and Real Activity: A Century of Evidence," Journal of Finance, American Finance Association, vol. 45(4), pages 1237-1257, September.
    5. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-384, March.
    6. Officer, R R, 1973. "The Variability of the Market Factor of the New York Stock Exchange," The Journal of Business, University of Chicago Press, vol. 46(3), pages 434-453, July.
    7. Fazal HUSAIN & Jamshed UPPAL, 1999. "STOCK RETURNS VOLATILITY IN AN EMERGING MARKET: The Pakistani Evidence," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 15, pages 19-40.
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    Cited by:

    1. Amir Rafique, 2011. "Comparing the Volatility Clustering Of Different Frequencies of Stock Returns in an Emerging Market: A Case Study of Pakistan," Journal of Economics and Behavioral Studies, AMH International, vol. 3(6), pages 332-336.
    2. Amir Rafique, 2011. "Comparing the Leverage Effect of Different Frequencies of Stock Returns in an Emerging Market: A Case Study of Pakistan," Information Management and Business Review, AMH International, vol. 3(6), pages 283-288.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E00 - Macroeconomics and Monetary Economics - - General - - - General

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