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Macroeconomic Determinants of Market Capitalization of PSX 100 Index: An Application of VAR Approach

Author

Listed:
  • Nadia Naz

    (Research Scholar, Department of Management Sciences, Mohammad Ali Jinnah University, Karachi, Pakistan)

  • Asif Saeed Naji

    (Assistant Professor, Department of Management Sciences, Mohammad Ali Jinnah University, Karachi, Pakistan)

  • Afaq Ali Khan

    (Assistant Professor, Department of Economics, Mohammad Ali Jinnah University, Pakistan)

  • Abdul Gaffar

    (Assistant Professor, Faculty of Management Sciences, Hamdard University, Karachi, Pakistan)

Abstract

This study highlighted the significance of macroeconomic determinants on market capitalization of the PSE 100 Index in Pakistan. Market capitalization obliges as a crucial indicator of economic activities in the country. Independent variables include exchange rate, GDP, inflation, and interest rate, while market capitalization is treated as the dependent variable. Key findings from this research include utilization of VAR methodology to explore the relationships among these variables over the period from 2014 to 2023.Granger causality analysis indicating that most variables influence each other. Hypothesis testing revealing a significant relationship between interest rate and inflation, while relationships with exchange rate and GDP are found to be insignificant regarding their impact on market capitalization. Conclusion that, except for exchange rate and GDP, all variables significantly affect market capitalization. This study suggests implications for policy, recommending that the State Bank of Pakistan adopt stringent policies to enhance market capitalization. This research contributes to understanding how macroeconomic factors shape the dynamics of the stock market in Pakistan.

Suggested Citation

  • Nadia Naz & Asif Saeed Naji & Afaq Ali Khan & Abdul Gaffar, 2024. "Macroeconomic Determinants of Market Capitalization of PSX 100 Index: An Application of VAR Approach," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 752-762.
    • Handle: RePEc:rfh:bbejor:v:13:y:2024:i:2:p:752-762
    DOI: https://doi.org/10.61506/01.00390
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    References listed on IDEAS

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    1. Javed Pervaiz & Junaid Masih & Teng Jian-Zhou, 2018. "Impact of Macroeconomic Variables on Karachi Stock Market Returns," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(2), pages 28-34, February.
    2. Faten Moussa & Ezzeddine Delhoumi, 2021. "The asymmetric impact of interest and exchange rate on the stock market index: evidence from MENA region," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(10), pages 2510-2528, March.
    3. Faris Alshubiri, 2021. "The stock market capitalisation and financial growth nexus: an empirical study of western European countries," Future Business Journal, Springer, vol. 7(1), pages 1-20, December.
    4. Hunjra, Ahmed Imran & Chani, Muhammad Irfan & Ijaz, Muhammad Shahzad & Farooq, Muhammad & Khan, Kamran, 2014. "The Impact of Macroeconomic Variables on Stock Prices in Pakistan," MPRA Paper 60791, University Library of Munich, Germany.
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