DefinePK hosts the largest index of Pakistani journals, research articles, news headlines, and videos. It also offers chapter-level book search.
Title: The Interplay between Interest Rate and Stock Prices: Evidence from Pakistan’s Financial Market
Authors: Muhammad Abuzar, Muhammad Waqas Malik
Journal: International Journal of Human and Society (IJHS)
Publisher: Educational Scholarly Horizons
Country: Pakistan
Year: 2024
Volume: 4
Issue: 3
Language: English
This empirical study aims to examine the correlation between stock prices and interest rates in Pakistan. The existing literature had extensively explored the connection between stock prices and these financial variables, resulting in a variety of findings that underscore the complexity of their interaction. Some empirical evidence suggests a positive relationship between stock price fluctuations and changes in interest and exchange rates, indicating a significant association. However, a substantial body of research has also identified an inverse correlation between stock price fluctuations and changes in interest rates, further emphasizing the intricate nature of this relationship. This study utilizes data from the past ten years of the Pakistani Stock Exchange (KSE 100 index) to analyze this relationship. The findings reveal an inverse correlation between stock prices and changes in interest rate. Specifically, when stock prices are low, companies tend to avoid entering the capital markets unless the State Bank offers an alternative investment plan for the capital markets. Additionally, a firm's equity value is significantly influenced by variations in interest and exchange rates. Furthermore, the relaxation of Fiscal/Monetary policy can shrink both stock prices and interest rates as individuals have more disposable income to spend on goods or invest in stocks. This nuanced understanding of the association between monetary policy and stock prices is crucial for policymakers and investors. It highlights the need for strategic interventions by the State Bank to stabilize the market and foster an environment conducive to investment. Moreover, it underscores the importance for investors to consider the broader macroeconomic context when making investment decisions, as these financial variables play a pivotal role in determining market trends.
To examine the correlation between stock prices and interest rates in Pakistan's financial market.
Empirical study utilizing secondary data from the Pakistan Stock Exchange (KSE 100 index) for the past ten years. Correlation and regression analysis were conducted using SPSS. Interest rate data was sourced from the State Bank of Pakistan and the Bureau of Statistics of Pakistan.
graph TD;
A["Collect Secondary Data KSE 100 Index, Interest Rates"] --> B["Analyze Data using SPSS"];
B --> C["Perform Correlation and Regression Analysis"];
C --> D["Interpret Results"];
D --> E["Formulate Conclusions and Recommendations"];
The study highlights the complex relationship between interest rates and stock prices in Pakistan. While a negative correlation was found, the impact of interest rates on stock prices is not overwhelmingly strong, suggesting that other factors like company growth, earnings per share, dividend policy, and GDP development also play significant roles. Policymakers and investors need to consider the broader macroeconomic context.
There is an inverse correlation between stock prices and changes in interest rates. A firm's equity value is significantly influenced by variations in interest and exchange rates. Relaxation of fiscal/monetary policy can shrink both stock prices and interest rates. The R-squared value of 0.844 indicates that interest rate causes 84.4% of the change in the stock index.
Stock exchanges are vital economic indicators. Interest rates are a critical macroeconomic variable affecting the stock market. The study found a slight negative impact of interest rates on stock prices in Pakistan. Lower interest rates are beneficial for the economy, creating an optimal time for new entrants to capitalize in the stock market.
- The study utilized data from the past ten years of the Pakistani Stock Exchange (KSE 100 index).
- The R-squared value observed was 0.844, indicating that interest rate accounts for 84.4% of the change in the stock index.
- The ANOVA analysis showed a P-Value less than 0.001, which is less than the 0.05 threshold, indicating a significant relationship between interest rate and stock price.
Loading PDF...
Loading Statistics...