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The Stock exchange and the Economic system in Pakistan
Fazal Husain and Tariq Mahmood
Pakistan Institute of Development Economics
Online at http://mpra.ub.uni-muenchen.de/4215/ MPRA Daily news No . 4215, posted twenty four. July 2007
The Pakistan Development Review 40: 2 (Summer 2001) pp. 107вЂ“114
The Stock Market and the Economy in Pakistan
FAZAL HUSAIN and TARIQ MAHMOOD
This paper re-examines the origin relationship among stock prices and macro variables just like consumption spending, investment spending, and financial activity (measured by GDP) in Pakistan. Using twelve-monthly data from 1959-60 to 1998-99 and applying cointegration and problem correction research, the newspaper indicates the presence of long-run romance between stock prices and macro parameters. Regarding the trigger and result relationship, the analysis indicates a verified causation via macro factors to share prices, suggesting that in Pakistan fluctuations in macro variables cause changes in inventory prices. The findings claim that the wall street game in Pakistan is not that developed to play it is due part in affecting aggregate demand. A distressing feature of the stock market in Pakistan is the fact it cannot be characterised as the leading signal of financial activity. Inside the absence of various other strong symptoms, shooting from stock prices may suggest a risky bubble.
I actually. INTRODUCTION The stock market plays an important role in the economy by mobilising household resources and channelling those to productive purchase. This implies which it must have an important relationship with the economy. The partnership can be seen, generally speaking, in 2 different ways. The initially relationship opinions the stock market as the key indicator from the economic activity in the country, although the second is targeted on the feasible impact the stock market may well have upon aggregate demand, particularly through aggregate usage and expenditure. In other words, whether changes in stock exchange cause changes in macroeconomic variables, like Consumption Expenditures, Investment Spending, Gross Household Product (GDP), Index of Industrial Production (IIP), etc ., and/or caused by these variables is definitely an interesting issue to be reviewed. The former case implies that stock exchange leads economic activity, whereas the latter shows that it lags economic activity. The knowledge from the relationship among stock rates and macro variables has become becoming more important in the case of expanding countries consideringg the various economical reforms occurring there. From the beginning of the 1990s, a number of Fazal Husain and Tariq Mahmood are Elderly Research Economist and Analysis Economist, respectively, at the Pakistan Institute of Development Economics, Islamabad. Authors' Note: We could grateful to Dr Abdul Qayyum, Dr A. Ur. Kemal, and Dr Faiz Bilquees for valuable feedback and recommendations on an previous draft in the paper.
Husain and Mahmood
actions have been used for economic liberalisation, privatisation, relaxation of foreign exchange handles, and in particular the opening with the stock markets to worldwide investors. These types of measures have resulted in significant improvements inside the size and depth of stock market segments in developing nations plus they are beginning to play their thanks role. The empirical evidence regarding the way of causality between stock prices and macro variables is not conclusive. For example , a unidirectional causality by stock rates to ingestion expenditures is definitely observed simply by Nishat and Saghir (1991) in Pakistan and Ahmed (1999) in Bangladesh, although Mookerjee (1988) observes the other case in India. In the same way, Mookerjee (1988) and Ahmed (1999) statement a unidirectional causality coming from stock rates to expense spending pertaining to India and Bangladesh respectively, whereas the other case is reported by Nishat and Saghir (1991) for Pakistan. With regards to causal regards between stock prices and economic activity,...
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