The purpose of the research is to examine the causal relationship between stock prices and the variables representing the real sector of the economy for example real GDP, and real investment, in Pakistan. In this study, annual data is used (quarter-wise) from December 1980 to June 2007 and the correlation analysis has been applied, to investigate the relationship. For better understanding of the Market’s Behavior, data has been grouped in to Liberalization periods; Preliberalization and Post-Liberalization. The stock market in Pakistan provides an average quarterly return of 2.86%.The average annual growths in real variables are just lower than 1% for GDP and returns slightly over 1% in investments. A comparison of the descriptive statistics between the two sub-periods indicates decline in the average growth in real variables. Real GDP fell ,and real investment also decreased. The decline is significant both in GDP and investment. Though the magnitude of the average growth in stock price index increased in the second period it is not significantly different from that of the first period. The descriptive statistics indicates a much higher expansion in stock prices relative to real variables. However, the stock prices also experienced higher volatility during the sample period whereas the real variables seem to be stable
Causal relationship, Stock price index, Real sector of the economy, GDP & Real investment, Higher volatility, Pre-liberalization, Post-liberalization
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Ahmed, R. R., Meenai, Y., & Hussain, F. (2013). Study of economic development of Pakistan through stock market: causal relationship of stock prices and macroeconomic indicators. Business Review, 8(2), 124-141. Retrieved from https://ir.iba.edu.pk/businessreview/vol8/iss2/10
March 30, 2021