THE IMPACT OF MACROECONOMIC VOLATILITY ON STOCK RETURN VOLATILITY: EVIDENCE FROM PAKISTAN STOCK MARKET

Fauzia Mubarik, Attiya Yasmin Javid


DOI: http://dx.doi.org/10.22555/pbr.v19i4.1867

Abstract


This study examines the impact of macro-economic volatility
on stock return volatility for fifty stocks listed at the Karachi Stock
Exchange using monthly data from July 1998 to June 2014. The
macro-economic variables included in the analysis are market return,
industrial production, inter-bank call money rate, term structure of
interest rate, money supply, exchange rate and the inflation rate. The
result of significant autoregressive process suggests existence of
volatility persistence. The industrial production has a negative effect
on stock market volatility and the volatility of exchange rate captures
the external sector volatility and has a positive effect on stock return
volatility. The increased variation in money supply and inflation
make stock returns more volatile and an unexpected change in call
money rate and the term structure of interest rate has the opposite
effect on stock returns volatility. This leads to the conclusion that
stock prices fluctuations in Pakistan are influenced by financial and
economic variables’ uncertainty. Therefore, investors, authorities and
policy makers are needed to take into account the


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