The impact of macroeconomic variables on Pakistan stock market (PSX) (Case study of top-rated companies of (PSX)

Abstract

The stock market plays a critical role in the economy by mobilizing resources and converting them into productive investments, establishing a significant relationship with macroeconomic variables. Various studies have shown that fluctuations in macroeconomic factors, such as aggregate consumption, inflation, interest rates, and exchange rates, reflect in stock market movements. This research focuses on the impact of macroeconomic variables on the Pakistan Stock Exchange (PSX), specifically analyzing top-rated companies. Previous studies in the U.S., Japan, and Bangladesh have demonstrated the influence of industrial production, bond rates, and inflation on stock markets, showing a direct link between economic indicators and market performance. In Pakistan, remittances play a crucial role in the economy, contributing significantly to economic growth and, consequently, influencing the stock market. The State Bank of Pakistan reported record remittance inflows in 2010-2011, highlighting their importance to the country’s financial health. This study aims to examine how key macroeconomic factors, including GDP, remittances, inflation, and interest rates, affect the PSX, using insights from both local and international research. Understanding these relationships will provide valuable information for investors and policymakers in predicting stock market trends.

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