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Stock Prices, Real Sector and the Causal Analysis: The Case of Pakistan

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  • Husain, Fazal

Abstract

This paper re-examines the causal relationship between stock prices and the variables representing the real sector of the Pakistani economy.Using annual data from 1959/60 to 2004/05, examining the stochastic properties of the variables used in the analysis, and taking care of the shifts in the series due to the start of the economic liberalization program in the early 1990s, the paper investigates the causal relations between stock prices and variables like real Gross Domestic Product (GDP), real consumption expenditure, and real investment spending. The analysis indicates the presence of a long run relationship between stock prices and the real sector variables. Regarding the cause and effect relationship, the analysis indicates a one-way causation from the real sector to stock prices implying that the stock market in Pakistan is still not that developed to influence the real sector of the economy. Hence the market cannot be characterized as the leading indicator of the economic activity in Pakistan

Suggested Citation

  • Husain, Fazal, 2006. "Stock Prices, Real Sector and the Causal Analysis: The Case of Pakistan," MPRA Paper 4162, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:4162
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    File URL: https://mpra.ub.uni-muenchen.de/4162/1/MPRA_paper_4162.pdf
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    References listed on IDEAS

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    1. Barry Bosworth, 1975. "The Stock Market and the Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 257-300.
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    Cited by:

    1. Nadeem Ul Haque & Musleh-ud Din & Lubna Hasan, 2007. "Research at PIDE: Key Messages," PIDE Books, Pakistan Institute of Development Economics, number 2007:2.
    2. Riadh El abed, 2017. "Exploring the nexus between Stock prices and Macroeconomic shocks: Panel VAR approach," Economics Bulletin, AccessEcon, vol. 37(3), pages 2053-2066.
    3. Javed Iqbal, 2012. "Stock Market in Pakistan," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 11(1), pages 61-91, April.
    4. Riadh El ABED & Amna ZARDOUB, 2019. "Exploring the nexus between macroeconomic variables and stock market returns in Germany: An ARDL Co-integration approach," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(619), S), pages 139-148, Summer.
    5. Chandrashekar Raghutla & Krishna Reddy Chittedi, 2021. "Financial development, real sector and economic growth: Evidence from emerging market economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6156-6167, October.

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    More about this item

    Keywords

    Stock Prices; Causal Relations; Real Sector; Economic Activity; Pakistan;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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