The purpose of the research is to examine the causal relationship between stock prices and the variables representing the real sector of the economy like read GDP, and real investment spending, in Pakistan. Researcher has used annual data from December 1980 to June 2007, to examine the stochastic properties of the variables, and has taken care of the expected shift in the series due to the start of the liberalization program in the early 1990s. State Bank General Price Index (SBGPI) with base 1980-81 is used for stock prices whereas for real variables GDP, and investment, at constant prices of 1980-81 were used. The descriptive statistics indicate a much higher expansion in stock prices relative to real variables. However, the stock prices also experienced much higher volatility during the sample period whereas the real variables seem to be stable. The correlation analysis shows low correlations between stock prices and real variables. However, there is evidence of significant increase in these correlations in the post reform period suggesting that these reforms resulted in significant improvement in the behavior of stock market and its linkages to the economy. In the formal investigation, the co-integration regressions indicate the presence of a long run relationship between stock prices and real variables. Regarding the cause and effect relationship the error correction model suggest a unidirectional causality from the real variables to stock prices implying that in Pakistan fluctuations in real sector cause changes in stock prices. The analysis does not verify the evidence of improvement in the linkages of stock market to the economy, which is indicated by the correlation analysis. These results have not changed by the incorporation of the expected shift in the variables resulting from the liberalization measures. The findings suggest that the stock market in Pakistan is still not that developed to play its due role in influencing the real sector of the economy. It can be implied, however, that the government can use the real sector to influence the stock market. An important implication of the findings is that the stock market in Pakistan cannot be characterized as the leading indicator of the economic activity. The study clearly indicates that it lags economic activity. It seems that the phenomenal growth in stock market variables like market capitalization, trading volume, the market index, etc. do not seem to influence the economy of Pakistan.
Inhaltsverzeichnis (Table of Contents)
- Chapter I: INTRODUCTION
- Background of the Study
- Role of the Securities Market in Economic Development
- Stock Markets and Economic Growth
- Purpose of the Study
- Stock Markets in Pakistan
- Karachi Stock Exchange (KSE)
- KSE: Performance
- KSE Indices
- Chapter II: REVIEW OF THE LITERATURE
- Stock Market Development and Long Run Growth
- Risk Diversification - International Integration
- Financial Factors in Economic Growth: The Theoretical Nexus
- Cross-Country Econometric Evidence
- Time-Series Econometric Evidence
- Current Economic Situation of Pakistan
- Key Projections
- Summary of Pakistan's Macroeconomic Performance
- Chapter III: RESEARCH METHODOLOGY
- Data and Methodology
- Data Sources
- Descriptive Statistics
- Correlation Coefficient
- Augmented Dickey Fuller (ADF)
- Co-Integration Analysis
- Dummy Variable
- Chapter IV: DATA ANALYSIS
- Descriptive Statistics for Growth in Stock Prices and Macro Variables
- The Correlation Coefficient of Stock Prices and Macro Variable
- Efficiency of the Stock Market in Post Liberalization Period
- Causal Relations between Stock Prices and the Variables
- The Long-Run Relations of Stock Prices with Real Variables
- The Direction of Causality between Two Variables
- Shifts in Stock Prices and Real Variables
- Chapter V: SUMMARY, CONCLUSION AND RECOMMENDATIONS
- Summary & Conclusion
- Recommendations
- Suggested Areas of Further Research
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
The study aims to investigate the causal relationship between stock prices and variables representing Pakistan's real economic sector, specifically real GDP and real investment spending. Using annual data from 1980 to 2007, the research analyzes the stochastic properties of these variables, accounting for economic liberalization in the early 1990s. The analysis explores long-term relationships and the direction of causality between stock prices and real sector variables.
- The causal relationship between stock prices and the real sector of the Pakistani economy.
- The impact of economic liberalization on the relationship between stock prices and real sector variables.
- The role of the Pakistani stock market in economic development.
- Analysis of long-run relationships and causality between stock prices and real sector indicators.
- Evaluation of the Pakistani stock market's performance and its ability to act as a leading economic indicator.
Zusammenfassung der Kapitel (Chapter Summaries)
Chapter I: INTRODUCTION: This chapter sets the stage for the study by providing background information on the role of securities markets in economic development, focusing specifically on the relationship between stock markets and economic growth. It introduces the purpose of the study, which is to examine the causal relationship between stock prices and the real sector of the Pakistani economy. The chapter also gives an overview of the Pakistani stock market, the Karachi Stock Exchange (KSE), its performance, and its key indices, providing context for the subsequent analysis.
Chapter II: REVIEW OF THE LITERATURE: This chapter reviews existing literature on the relationship between stock market development and long-run economic growth. It explores various theoretical and empirical perspectives on the financial factors that contribute to economic growth, examining both cross-country and time-series econometric evidence. The chapter also provides an overview of Pakistan's current economic situation and key macroeconomic indicators, laying the groundwork for understanding the context within which the study's empirical analysis will be conducted.
Chapter III: RESEARCH METHODOLOGY: This chapter details the research methodology employed in the study. It describes the data sources and the statistical techniques used, including descriptive statistics, correlation analysis, Augmented Dickey-Fuller (ADF) tests for stationarity, co-integration analysis to examine long-run relationships, and error correction models to investigate causality. The chapter explicitly outlines the approach taken to handle potential structural breaks in the data series due to the economic liberalization program in the early 1990s.
Chapter IV: DATA ANALYSIS: This chapter presents the results of the empirical analysis. It begins with descriptive statistics summarizing the key variables. Then, it presents the results of the correlation analysis, co-integration regressions, and error correction models, examining the relationships and direction of causality between stock prices and real sector variables. The chapter carefully analyzes the effects of the economic liberalization program on the observed relationships.
Schlüsselwörter (Keywords)
Pakistan, stock market, economic development, stock prices, real GDP, real investment, economic growth, liberalization, co-integration, causality, econometrics, Karachi Stock Exchange (KSE).
Frequently Asked Questions: Analysis of the Causal Relationship Between Stock Prices and the Real Sector in Pakistan
What is the main topic of this research?
This research investigates the causal relationship between stock prices and Pakistan's real economic sector, specifically real GDP and real investment spending. It analyzes this relationship using annual data from 1980 to 2007, considering the impact of economic liberalization in the early 1990s.
What is the scope of the study?
The study examines the stochastic properties of stock prices, real GDP, and real investment, exploring long-term relationships and the direction of causality between these variables. It also assesses the role of the Pakistani stock market in economic development and its performance as a leading economic indicator.
What data was used in this research?
The research utilizes annual data from 1980 to 2007. Specific data sources are detailed within the methodology chapter.
What methodology was employed?
The methodology includes descriptive statistics, correlation analysis, Augmented Dickey-Fuller (ADF) tests for stationarity, co-integration analysis to identify long-run relationships, and error correction models to analyze causality. The impact of economic liberalization is explicitly considered.
What are the key findings of the study (in summary)?
Detailed findings are presented in Chapter IV. The analysis explores the correlation, long-run relationships, and causal links between stock prices and macroeconomic variables. The effects of economic liberalization on these relationships are also examined. Specific conclusions are found in Chapter V.
What are the key themes explored in the research?
Key themes include the causal relationship between stock prices and the real sector, the influence of economic liberalization on this relationship, the role of the Pakistani stock market in economic development, the identification of long-run relationships and causality, and the assessment of the stock market’s performance as an economic indicator.
What are the chapter summaries?
Chapter I provides an introduction and background. Chapter II reviews relevant literature. Chapter III details the research methodology. Chapter IV presents the data analysis and results. Chapter V offers a summary, conclusions, and recommendations.
What are the key words associated with this research?
Keywords include: Pakistan, stock market, economic development, stock prices, real GDP, real investment, economic growth, liberalization, co-integration, causality, econometrics, Karachi Stock Exchange (KSE).
What are the overall objectives of this study?
The primary objective is to investigate the causal relationship between stock prices and real sector variables in Pakistan. Secondary objectives include assessing the influence of economic liberalization and evaluating the stock market's role in economic development.
Where can I find more detailed information?
The complete study, including detailed methodology, data analysis, and conclusions, is available in the full document (implied).
- Arbeit zitieren
- Rizwan Raheem Ahmed (Autor:in), 2007, Study of economic development of Pakistan through stock market, München, GRIN Verlag, https://www.grin.com/document/307659
