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The Determinants of Stock Prices in Pakistan

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  • Mehr-un Nisa
  • Mohammad Nishat

Abstract

Stock Investment is always a risky proposition and investors are reluctant to invest in Stock Market. If they came to know about the exact factors influencing the stock prices, they will invest in stocks confidently. This study examines the empirical relationship between the stock prices, financial fundamentals and macroeconomic factors in Karachi Stock Exchange. By applying the dynamic panel Generalized Method of Moments (GMM) technique on the data of 221 firms during 1995-2006, the analysis attempts to obtain efficient parameter estimates and to check the consistency of the link between stock price behavior, company fundamentals and macroeconomic factors. Several studies have been conducted to identify the factors of stock prices for a variety of countries, and the results have been mixed. It is found that previous behavior of stock prices, company size, previous earnings per share are the most important factors. In addition, macroeconomic indicators like, GDP growth, rate of interest and financial depth have significant relationship with the stock prices. Market to book value, share turnover ratio and inflation can also influence the stock price behavior. The corporate reforms of 2002 are responsible of increase in stock prices from 2002 to 2006. Investors in Pakistan have to decide which stock should be purchased. The results of this study will provide guideline to the investors in stock selection. While taking decisions they should take into account company informations as well as macroeconomic situation of the country simultaneously. The companies can set their policies and strategies in the light of relatively important factors, for business survival and success. The possible impact of macroeconomic factors may help the policy makers while setting monetary and fiscal policies.

Suggested Citation

  • Mehr-un Nisa & Mohammad Nishat, 2011. "The Determinants of Stock Prices in Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(4), pages 276-291.
    • Handle: RePEc:asi:aeafrj:v:1:y:2011:i:4:p:276-291:id:731
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    Cited by:

    1. Sara Picas & Pedro Reis & António Pinto & José Luís Abrantes, 2021. "Does Tax, Financial, and Government Incentives Impact Long-Term Portuguese SMEs’ Sustainable Company Performance?," Sustainability, MDPI, vol. 13(21), pages 1-16, October.
    2. Arif SALDANLI & Mücahit AYDIN & Hakan BEKTAŞ, 2017. "The determinants of stock prices: Evidence from the Turkish banking sector," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(610), S), pages 181-188, Spring.
    3. Arif SALDANLI & Mücahit AYDIN & Hakan BEKTAŞ, 2017. "The determinants of stock prices: Evidence from the Turkish banking sector," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 181-188, Spring.
    4. Percival S. Gabriel, 2013. "How Newspaper-Article-Events, Other Stock Market Indices, and the Foreign Currency Rate Affect the Philippine Stock Market," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(4), pages 423-444, April.
    5. Muhammad Usman & Danish Ahmed Siddiqui, 2019. "The Effect of Oil Price on Stock Market Returns with Moderating Effect of Foreign Direct Investment & Foreign Portfolio Investment: Evidence from Pakistan Stock Market," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 7(2), pages 45-61, June.
    6. Rabia najaf, 2017. "Hedging Effectiveness of Crude Palm Oil on the performance of stock Market Malaysia," International Journal of Academic Research in Management and Business, International Journal of Academic Research in Management and Business, vol. 2(1), pages 6-15, january.
    7. Rubina Shaheen & Attiya Yasmin Javid, 2014. "Effect of Credit Rating on Firm Performance and Stock Return; Evidence form KSE Listed Firms," PIDE-Working Papers 2014:104, Pakistan Institute of Development Economics.
    8. Venugopala Rao Kuntamalla & Krishna Jyotreddy Maguluri, 2023. "Impact of Financial Ratios on Stock Prices of Manufacturing Companies: Evidence from India," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 169-181.
    9. Nur Dilbaz Alacahan & Seda Yavuzaslan Soylemez, 2017. "The Impact of Petrol Prices on Stock Prices of Energy Companies: A Panel Data Analysis for Turkey," EconWorld Working Papers 17006, WERI-World Economic Research Institute, revised Oct 2017.
    10. Tharinee Pongsupatt & Apichat Pongsupatt, 2019. "Factors Affecting Stock Price: The Case of Thailand Stock Exchange SET 100 Index," Proceedings of International Academic Conferences 9711711, International Institute of Social and Economic Sciences.
    11. Shahbaz, Muhammad & Ur Rehman, Ijaz & Zainudin, Rozaimah, 2013. "Macroeconomic Determinants of Stock Market Capitalization in Pakistan:Fresh Evidence from Cointegration with unknown Structural breaks," MPRA Paper 52490, University Library of Munich, Germany, revised 24 Dec 2013.
    12. Sabariah Nordin & Rusmawati Ismail, 2014. "The Impact of Palm Oil Price on the Malaysian Stock Market Performance," Journal of Economics and Behavioral Studies, AMH International, vol. 6(1), pages 1-9.
    13. Zahiruddin Ghazali & Norlida Abdul Manab, 2013. "Enterprise Risk Management and Value Creation: Initial Findings amongst Non-Financial Public Listed Companies in Malaysian Bourse," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(7), pages 913-922, July.

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