The Micro Economic determents of Stock Prices

The case study of Pakistan

Submitted by

Saifullah Shakir
Student of MS (Finance)
Muhammad Ali Jinnah University

Submitted to

Dr. Roohe Azeem Ahmed

Department of Economics
Karachi University
 Table of Content

01. Abstract…………….…………………………………………….03
02. Introduction.……………………………………………………….04
02.1 Karachi Stock Exchange.…………………………………..04
02.2 Lahore Stock Exchange……….…………………………....06
02.3 Islamabad Stock Exchange …..…………………………….09
03. Purpose of Study …..………………………………………………10
04. Problem Statement ………………………………………………..12
05. Literature Review..…………………………………………………12
06. Methodology …………...………………………………………….13
06.1 Population and Sample ……………………………………..13
06.2 Data and Data Collection Source ….………………………...13
06.3 Model Specification..…….….………………………………13
06.4 Conceptual Framework……….……………………………...14
07. Statement of Hypotheses ………………………………………….14
07.1 Null Hypotheses ……………………………………………15
07.2 Alternative Hypotheses……………………………………..15
08. Time Budget……………………………………………………….17
09. Bibliography..……………………………………………………..17

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Research Proposal submitted by Saifullah Shakir
 The Micro Economic determents of Stock Prices
The case study of Pakistan

1. Abstract
This study paper will try to explore the factors that will liable for distressing Karachi Stock
Exchange-100 Index (KSE) in Pakistan. Further this paper will try to consider the relative
pressure of the factors affecting KSE and thereby try to dig out the significance of such variables
with KSE. It is a admitted fact that GDP, Dollar Exchange Rate or money supply, Gold Prices,
Real State Prices, Rate of Return on Public Savings, Unemployment, Energy Crises and
Terrorism values has a great influence on ingenious therefore, this research identifies the level of
influence of GDP, Dollar exchange rate, or Money Supply, Gold Prices, Real State Prices and
Rate of Return on Public Savings values on Nifty. For the purpose to establish this relationship
Co-integration Analysis data techniques will be employed by using E.Views software.

Keywords: GDP, Dollar Exchange Rate, Money Supply, Gold Prices, Real State Prices, Public
Saving, Co-integration Analysis, Stock Exchange, Unemployment, Energy Crises, Terrorism,

2. Introduction

The Stock markets of any country always play an imperative role in the economic growth of
today’s most progressive economy. It is very difficult to conceive a flourishing economy without
the presence of stock markets. These Stock Markets are playing an important role in mobilization
of domestic resources to determine throughout the movements in its index which is subject to
many factors such as companies’ internal management factors, domestic macro & micro
economic factors, social, political and internal policies factors. The main focus of this study is to
investigate the impact, causal relationship and significance between selected Macro economic
variables on Karachi stock market index of Pakistan. Right now, there are three stock exchange
markets which are operating in Pakistan named as Karachi Stock Exchange, Islamabad Stock
Exchange and Lahore Stock Exchange. For the study purpose I have selected only KSE -100 as a
sample. The Karachi Stock Exchange (KSE) market is instable since Last many years; in the
2000 to 2008 the KSE showed historical upward trends and cross 25000 points during trading of
one working day. Due to this upward trend investors happily invested their capital in stock
market. The basic macroeconomic variables like GDP, exchange rate, Money Supply, Gold
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Research Proposal submitted by Saifullah Shakir
Prices, Real State Prices, Return on Government Savings and inflation played very dynamic role
in determining the stock prices. In the year 2008 to 2013 the KSE declined at historical stage.
Due to this decline people drew their investment from stock market. No doubt the Government
economic policies and macroeconomic variables played vital role in general economic policies
and on stock market. The relationship between stock market and macroeconomic variables has
become most interested subject for researchers since last many decades. The brief introduction of
Karachi Stock Exchange is given hereunder:

2.1 Karachi Stock Exchange

Before presenting the introduction and history of Karachi Stock Exchange we go back to the date
before constituting dates of our country Pakistan. In 1933 a stock exchange style named as “The
Punjab Stock & Share Association” had been established in the city of Lahore, one other stock
exchange named the Lahore Stock Exchange had been registered during rumble period after the
Second World War. These stock exchanges were operating mostly by Hindu (Non-Muslim)
management .In 1947 after the independence of Pakistan Hindus migrated to India, due to this
heavy migration these institutions practically ceased functioning and in result, after the
independence there was no stock exchange existed in Pakistan. Since, there was a need of the
time to establish a Stock exchange in the country and therefore, after one year from the date of
independence Karachi Stock Exchange had been established in 1948 with only nine(9) members.
In an inaugural meeting which was held on 18th September,1948 the provisional constitution had
been adopted by the members.For one year the stock exchange showed no progress due to
scarcity of trained personnel in the field partially due to lack of keen interest of members.
Meanwhile, due to constitution of Government of Pakistan the State Bank of Pakistan (SBP) and
other commercial banks had started their function. As a result of this change, the Karachi Stock
Exchange amended its Memorandum and Articles of Association and registered as Limited
Liability Association on 10th March, 1949. In this year well experienced Stock Exchange
Secretary had also been appointed and Exchange became functioning accordingly.

Initially, the Karachi Stock Exchange started functioning in a small hall of the building of a bank
which was lent by one of the member of KSE. This building was situated on McLeod Road,
Karachi. The land where the present KSE building has been built was acquired in the year 1953.
At that time a go down of a clearing and forwarding company was situated on the place. After

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shifting the KSE these god-downs were converted in cubicles, which housed the Stock Exchange
and members offices. The then honorable Finance Minister Mr. Mohammad Shoaib laid down
the foundation stone ceremony of this new building on 8th December, 1960

Since 1949, the Karachi Stock Exchange showing fairly large progress in its trade activities.
Members of KSE have also been increased from 50 to 200. The number of listed companies has
rapidly showed up-ward trends and increased from 13 companies to 44 companies at the end of
the year-1960, these figures had reached up to 181 companies at the end of 1965.

The Karachi Stock Exchange has been governed by the following legislation;

 Administratively and functionally governed by Companies ordinance, 1984 and

Securities and Exchange ordinance, 1969 and the rules framed there under.
 Some specific activities are controlled by Federal Legislation Acts, such as
Monopolies and Restrictive Trade Practice (Control and Prevention), Ordinance-
1970, Companies (issue of capital) Rules-1996, Modaraba Companies and
Moradabad (Flotation and Control) Ordinance-1980, Leasing Companies
(Establishment and Regulation) Rules-1996, Investment companies and
investment Advisor Rules-1996 and Assets Management Companies Rules-1996.

The Karachi Stock Exchange runs under the administrative control of Board of Director. This
Board consists of eighteen (18) members; Ten (10) members of this Board are elected by two
hundred (200) members of the Exchange including Chairman and vice Chairman. Various
professional bodies and Institutions nominate three (3) members. The SECP and KSE jointly
appoint two (2) members. Managing Director of the Stock Exchange is appointed by the Board.

The requirements for the companies to be listed in Karachi Stock Exchange are as under:-

 The company is required to be registered under companies ordinance 1984 having

minimum capital of Rs.50.million.
 The company has initially subscribed 500 shares to investors.
 Provision of Listing Regulation-6(A).
 Prospectus of the company must have the approval of Karachi Stock Exchange.
 Approved Prospectus must have been submitted to Security and Exchange Commission
of Pakistan.

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The Karachi Stock Exchange had introduced its computerized trading system called KATS in the
year-1997 when the daily trading activities were around 7000 deals but the system had the
capacity of around 40,000 deals daily. The system was overloaded after the introduction of
Central Depository System due to which trading volume cross new heights and number of daily
trading deals exceeded by 55,000.The new system has been introduced and tested which is
capable to handle 100,000 deals daily. The purpose of this system is to provide a fair, transparent
and efficient market to the investors. The Karachi Stock Exchange has two trading sessions daily
i.e. in morning and in afternoon.

2.2Lahore Stock Exchange (LSE)

The LSE had been incorporated in the month of October, 1970 in compliance to Securities and
Exchange Ordinance, 1969 being a company limited by guarantee. In the beginning it consisted
of 83 members, the company had a rental building situated in the crowded Bank Square area of
Lahore. The development and prosperity of the company was badly affected because of limited
working space, difficult approach due to rush and heavily populated area and improper
infrastructure. Out of eighty three (83) members only a few members actively participated, and
they also had to work all the way through KSE-100 index and had less room for business in
Bonus, Vouchers and Bonds. Later on after construction of their own building located at 19-
Khayaban-e-Aiwan-e-Iqbal, Lahore, there had an adequate and appropriate space, well equipped
with all modern communication techniques and other facilities. Despite all the above facilities
the progress of LSE was not satisfied and up to the mark. Hence, for the purpose to meet the
requirements of a genuine market Government of Pakistan made the policies in accordance with
the existing economy policy of the market. And due de-regularization policy nationalized unit
were going towards privatization and sign of upward trend was being seen in the industry. The
Asia was predicted as the potential market of expanding world. Lahore Stock Exchange had
planned to contribute its utmost share in this expansion. Twenty one (21) pristine members
including six (6) corporate members had also been added in the year 1994, and the total members
became to 150. Out of them few members have converted their individual memberships into
corporate membership. Stock Exchange activities have enhanced in all areas since its
incorporation and it has become an input institution of the financial sector’s economy of
Pakistan. The year wise achievements and improvement made in LSE operations and other
facilities are discussed under preceding paragraphs:

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In the year 1987, for the purpose to groom up the capital market in the Punjab, Corporate Law
Authority (CLA) at that time have announced an obligatory order that companies should be
listed at both LSE and KSE at the same time. However, this condition has been detached in July
1991.In the year 1992, the LSE was shifted from rental building to its new (existing) building.

In the year 1993 the corporate members were allowed to become the member of LSE. In the year
1993, the Central Depository Company of Pakistan Limited (CDC) had been established to
supervise and control the Central Depository System (CDS) in Pakistan. In the year1994, the
LSE operation was fully operated on computerization program. The LSE has landmark to
achieve the highest Credit Rating i.e.T+3 from the Pakistan’s Credit Rating Agency (PACRA),
the first credit rating agency in Pakistan. The Member's Contribution Fund was also established
by the LSE. In the year 1996 the LSE introduced the automated trading Exchange first time in
Pakistan. In the year 1995 two types of loans of an amount of US$255 million were approved by
the Asian Development Bank for the Capital Markets Development Program. Restructuring
process of CLA had also been initiated. For the purpose to protect the interest of investor the
Investors Protection Fund was established.In the year 1998, First time after the incorporation of
LSE the independent Managing Director and five (5) outside members were appointed. In the
year1999, the Government of Pakistan established a regulatory authority with the name of
Securities and Exchange Commission of Pakistan (SECP) who succeeded the CLA. The Internet
Trading System was also launched by LSE.

As a substitute of separate and individual Clearing Houses which were being operated by
Karachi Stock Exchange, Islamabad Stock Exchange and Lahore Stock Exchange National
Clearing Company of Pakistan Limited (NCCPL) was came into existence in the year 2001. To
observe the trading of registered member’s experience on real time basis Lahore Stock Exchange
introduced automated Trade Risk Filter (TRF) for the purpose to enforcement of Code of
Corporate Governance on listed Companies. In the year 2002, Lahore Stock Exchange permitted
the Banks and financial institutions to befall as an Associate Member of LSE Clearing House.
The Lahore Stock Exchange has also introduced the Trading in Futures Contracts. In this year the
Lahore Stock Exchange launched a new LSE-25 index.

In the year 2003, LSE constituted its new Board of Directors which was consisted of 10
members. The new BOD has 05 elected members from Exchange and 04 nominated members

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Research Proposal submitted by Saifullah Shakir
from Securities and Exchange Commission of Pakistan (SECP), the Managing Director of the
Exchange was not the member of LSE .In this year the LSE also established its Surveillance
Department. In the year 2004, LSE members introduced the System Audit in LSE. In this year
LSE decided to shift its clearing settlement operations to National Clearing Company of
Pakistan. In this year LSE has also decided to open its out station Trading. Under this decision
first out station was opened in the city of Faisalabad. In the year 2005, second out station Trading
floor was opened in the city of poet of the east i.e. Sialkot. For the purpose to educate and aware
the investors, in this year LSE started series of education and awareness programs for guidance
of their investors. In this year LSE has also established a unit of investigation & enforcement to
keep the vigilance check on the market abuses.In the year 2006, LSE established its own
Training Institute. LSE signed MOU with Islamabad Stock Exchange to establish a unified
Trading Platform. And also comply the Finance Act 2006, Demutualization Committee of the
Exchange was recommended. In the year 2007 & 2008, LSE started joint trading on common
platform under unified Trading System with ISE. In these two years LSE introduce ultra trade
sold to Ghana Stock Exchange. In these two years the Oracle Financial Software was
implemented. In the year 2011, the LSE has effectively implemented Margin Trading System. In
this year LSE developed to introduce Security Lending and Borrowing System for NCCPL.

2.3 Islamabad Stock Exchange (ISE)

The Islamabad Stock Exchange had been incorporated on 25th October, 1989 as a company
limited by guarantee in the Capital city of Pakistan. Initially, the Islamabad Stock Exchange
building was situated in the Blue Area, Fazal –ul- Haq Road Islamabad. The said building was
called Nafees Plaza, this building had four stories. The building was occupied on rental basis
under a tenancy agreement, and the rent had been paid every month in advance. In 2009 ISE
inaugurated ISE towers. The new ISE tower is situated near Saudi Tower Building and is
comprised of 22 stories equipped with all modern facilities. Trading activities in Islamabad Stock
Exchange was started in the month of July, 1992. The prime purpose for establishing Islamabad
Stock Exchange was to develop unique trading activities and make it best market place in the
world. The main idea worked behind the establishment of the stock exchange in Islamabad (ISE)
was to oblige the needs of developing areas of the northern part of Pakistan.

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 The computerized Trading which is known as ISE-CTS adopted by this Exchange Market in the
year 1997. The logo of Islamabad Stock Exchange (ISE) was redesigned in the year, 2009. The
Unified trading system with LSE has been established in the year 2007. The “Ultra Trade”
trading system introduced in 2002, further, ISE launched its index i. e. ISE-10 index also. ISE
had been rated as T+2 by the Credit Rating Agency of Pakistan in the year 2007.The remote
trading system was introduced by ISE in the year 2003. In this year system audit of Brokers was
also introduced. Presently, ISE is consisted of one hundred eighteen (118) members out of which
one hundred four (104) are corporate bodies including commercial and investment banks, DFIs
and brokerage houses. The remaining fourteen (14) members are highly qualified and creative
mind individuals. By the passage of time ISE groomed into a stable body and did a lot to
improve and enhance its operational skills and prove itself a supportive body which helps the
trading around. Moreover, it facilitates and provides room to the investors trading at low profile
and not the residents of big cities of Pakistan.

3. Purpose of Study
The purpose of this paper is to investigate the long run equilibrium relationship as well as causal
relation between the stock price and five market oriented variables technically known as
macroeconomic variables (i.e. GDP, exchange rate, Inflation, M-2 and Gold Prices in the context
of the Pakistani economy for the period from July2000 to June 2013) and to find the strength of
relation between macroeconomic variable and stock prices.

4. Problem Statement
Since instability seen in Karachi Stock Exchange Market and prime facie it looks that it is due to
fluctuation in macroeconomic variables of Pakistan. In order to investigate the actual factors
which may cause this study is being conducted. And for a while if, will be presumed that these
variable has a affective role than the question is with which ratio.

5. Literature Review

To investigate this relationship between macroeconomic variable and stock return many studies
have been completed like the Indian researcher Sharma Kennedy (1977) and Sharma (1983) test
the weak-form efficiency of the BSE. Both of these studies with the former covering the 1963-
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1973 periods and the later encompassing the 1973-1971 period, conclude that Indian stocks
generally conformed to random-walk behavior in that successive period changes were
independent. Poterba & Summers (1988), however, find evidence of mean reversion in Indian
stock prices, suggesting a deviation from random-walk behavior. Darat & Mukherjee (1987)
apply a vector auto regression model (VAR) along with Akaike’s final prediction ever on the
Indian data over 1948- 1984 and find that a significant causal relationship (in the sense of
Granger, 1969) exists between stock returns and selected macro-economic variables. Naka,
Mukherjee and Tufte (1996) have analyzed relationship among selected macro-economic
variables and the Indian stock market. By employing a vector error correction model, they found
that domestic inflation and domestic output are the two most prominent factors influencing stock
prices. In a recent study under NSE Research Initiative Kamath (2002, paper no. 10) uses
Artificial Neural Network (ANN) to examine the relationship of macro-economic factors to the
returns of individual assets. The BSE Sensex as well as some individual stock has been
examined. More recent studies like Bhattacharya & Mukherjee (2002), Rao & Rajeswari (2000),
Pethe & Karnik (2000) used advanced methods in econometrics to study the same relationship.
Bhattacharya and Mukherjee (2002) test the causal relationships between the BSE Sensex and
five macroeconomic variables applying the techniques of unit-root tests, co integration and long-
run Granger non-causality.

Mr. Muhammad Bayezid Ali had tried to asses impact of selected micro and macroeconomic
variable on emerging stock return on Dhaka Stock exchange (Bangladesh) in the year 2011.The
researcher selected inflation, industrial production index, foreign remittance, market price
/earning and average monthly growth in the capital market as explanatory variable and Dhaka
Stock Exchange as explained variable. For analyzing purpose 08 years data covering the period
from July-2002 to December-2009 have been gathered through monthly review publication
officially issued by the Dhaka Stock Exchange. To evaluate the data Multiple Regression Model
computed on OLS standards have been applied. The study concluded that two explanatory
variables inflations and foreign remittance have negative impact on the stock return, remaining
variables have positive relationship on stock return of Dhaka Stock Exchange.

Mr. Muhammad Bayezid Ali had tried to assess impact of selected micro and macro economic
variable on emerging stock return on Dhaka Stack Exchange (Bangladesh) in the year 2011. The
researcher selected inflation, industrial production index, foreign remittance, market

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Research Proposal submitted by Saifullah Shakir
price/earning and average monthly growth in the capital market as explanatory variable and
Dhaka Stock Exchange as explained variable. For analyzing purpose eight ( 08) years data
covering the period from July-2002 to December-2009 have been gathered through monthly
review publication officially issued by Dhaka Stock Exchange. To evaluate the data Multiple
Regression Model computed on OLS standards had been applied. The study concluded that two
explanatory variables like inflation and foreign remittance have negative impact on the stock
return, remaining variables have positive relationship on stock return of Dhaka Stock Exchange.

Pakistani researcher Dr. Nishad (2004) has evaluate long term association among
macroeconomic variables, stock prices and employed money supply, CPI,IPI and foreign
exchange rate as explanatory variable. The results show that there is casual relationship among
the stock price and macroeconomics variables. The data used in this study was from 1974 to
2004. Most of the time series is not stationary therefore; unit root technique is used to make the
data stationary. The results also indicate that industrial production is significantly affects to
macroeconomics variables. Nishat used Karachi Stock -100 index prices from 1974 to
2004.Grange casualty test is used to find the correlation among the variables. The result of
granger casualty shows that interest rate is not granger cause by Stock prices.

Dr. Aftab (2000) examined the association between monetary and fiscal policy of Pakistan to
equities markets and the results of his analysis are significant. The result shows that monetary
and fiscal policy could change market capitalization by liquidity and equity which can
significantly effect the market capitalization and stock prices case in Pakistan from the period
from 1993 to 1998.Liaquat Ali and Nadeem Ahmed (2008) used data 1971 to 2006 and tried to
find out the relationship of economic growth with stock prices and study shows that and there are
dynamic association between stock prices and economic growth employing DF-GLS first time in
Pakistan.

M. Shahbaz investigated the association between stock prices and rate of inflation using ARDL
approach for dynamics analysis. Results of this study depicts that stock hedges are not in favor of
inflation in long run as well as in short run and found that black money effects long run and short
run prices of the stock. The study used variables CPI (Inflation) and share of black economy, the
sample size is 1971 to 2006.

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Research Proposal submitted by Saifullah Shakir
 Dr. Roohi Azeem Ahmed and Dr. Khalid Mustafa (2012) have tried to explore the relationship
between inflation and real stock return by using the Full Information Maximum Likelihood
(FIML).The researcher has evaluated the monthly and annually data covering the period from
1972 to 2002.The researcher took the stock prices of KSE-100 index as dependent variable,
GNP and inflation as independent variable. Both concluded that relationship between inflation
and return disappears if real output growth rate remain under control.

Mr.Nadeem Sohail and Zakir Hussain (2009) has conducted a study on “long run and short run
relationship between macroeconomic variables and stock prices in Pakistan in the context of
Lahore Stock Exchange” to conduct this study they selected major five macroeconomic variables
i.e. Consumer Price Index, Real Effective Exchange Rate, Treasury Bills for three months, M-
2(Money Supply) .They take LSE-25 index prices as dependent variable. The data under study
had covered the period from December 2002 to June2008. The data collection source as
mentioned was obtained from State Bank of Pakistan and Business Recorder. They examine the
data by developing VECM data analyzing technique and concluded that there is a nine long run
relationship exist between macroeconomic variables and KSE-100 index the individual variable
varies impact on stock prices.

Dr. Roohi Azeem Ahmed and Khalid Mustafa (2013) have conducted a study on combined
impact of IPP and HUBCO on energy sector firms’ return trading in Karachi Stock Exchange .
For study researcher selected the period starting from July-1998 to December-2006. This study
was conducted on the basis of news of printed media published in Daily Dawn and Business
Recorder. The study concluded that the combined news of IPP and HUBCO has no significant
impact on the return of selected firms.

6. Methodology:

For the purpose to accomplish pre-determined set of objectives of my study, different kinds of
techniques and data tests tools will be applied. First and primary, to fulfill my study objectives
descriptive statistics technique such as a mean, standard deviation, variance, etc will be applied
to reflect the nature and basic characteristics of the variables used in the analysis. ADF test will
be used to find out the stationary or non stationary variables of data series. Inferential statistics

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Research Proposal submitted by Saifullah Shakir
technique will be used to inference about the results by using different ways of inferential
statistics like Correlation matrix analysis which finds any strength of association between
Karachi Stock Exchange indices (share price) and selected macroeconomic variables. Then the
second type of inferential statistics will be used which is linear regression analysis, this create a
mathematical model that can be used to predict the values of a stock price of Karachi Stock
Exchange indices based upon the values of macroeconomic variables. In other words, I will use
the model to predict the value of Y when I know the value of X. Here, I will use the sign-f to
analyze the overall significance of the sample regressions and t-test and p-value to check the
individual significance of the macroeconomic variables. Then, finally I will see the two way
relationship between variables by using granger causality test. The method which will be
employed to analyze this time series data will involve co-integration and the estimation of a
Vector Error Correction Model (VECM).Specifically; I will employ the Johansen maximum
likelihood procedure. This technique is a well popularized for testing the long-run relationships
among the variables so I can briefly explain the methodological aspects directly relevant to this
study.

6.1Population and Sample

All private limited companies which have been listed on Karachi Stock Exchange (KSE)
represented the population of the study. This Study will imply the convenience sampling data
technique for choice of the sample. A total of twenty six companies among the KSE-100 index
will be selected as sample for this study.
Although several studies have been completed to investigate the relationship between
macroeconomic variables and KSE-100 Index but no study has been conducted to investigate the
relationship of Unemployment, Return on Public Saving Scheme, Energy crises and Terrorism.
This type of study first time in Pakistan would be conducted wherein two major economic
problem and six main macroeconomic variables combined impact would be investigated

6.2 Data and Collection Source:

For the purpose of study, the Secondary data will be analyzed to dig out the relationship
between exogenous variable and endogenous variable and their significance. The secondary data
will be obtained from the website of State Bank of Pakistan and Karachi Stock Exchange data

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Research Proposal submitted by Saifullah Shakir
will obtain from the official site of Karachi Stock Exchange for the Financial Year from 2000 to
2013.

6.3 Model Specification

Forward and selection technique will be applied to select the model and finalized one is as
follows:
SP=α+βi(GDP)+βii(ER)+βii(G P)+βiv (R S P)+βv(RPS)+ β (Un)+ βVII (EC)+ βVIII( TR)+έ
VI

Where:

SP= Stock Prices of Karachi Stock Exchange

ER= Dollar Exchange Rate

GP= Gold Prices

RSP= Real State Prices

RPS= Return on Public Saving

UN= Unemployment

EC= Energy Crises

TR= Terrorism

έ = Stochastic Variable or Error Term

6.4 Conceptual Framework

Terrorism

Energy Crises

Unemployment

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 GDP
KARACHI STOCK EXCHANGE
RETURN
EXCHANGE RATE

GOLD PRICES

REAL ESTATE PRICES

RETURN ON PUBLIC SAVINGS

DEPENDENT VARIABLE
INDEPENDENT VARIABLES

To complete this study I will use Multivariate Regression Analysis of data technique computed
by the Standard OLS Formula to dig out the relationship between all share price index of KSE as
endogenous variable and some selected macroeconomic variables and two other factors such as
GDP, Dollar Exchange Rate, Gold Prices, Real State Prices, Return on Public Saving Scheme,
Unemployment, Energy Crises and Terrorism as exogenous variable. At the beginning I will
transform all the variables under study into log data. Then, to stationary the data I will take unit
root test at first level difference.

7. Statement of Hypothesis:
Based on previous studies and their results the hypothesis of this study is being presented as
below:

7.1Null Hypothesis

H0 : There is insignificant relation between GDP of Pakistan and Index of K S E

H0 : There is in significant relation between Dollar price Index of KSE
H0 : There is insignificant relation between Inflation in Pakistani economy and KSE

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Research Proposal submitted by Saifullah Shakir
 H0 : There is insignificant relation between M-2 and KSE
H0 : There is insignificant relation between Gold price and KSE
H0 : There is insignificant relation between all these macroeconomic variables and Karachi
Stock Exchange Market.

7.2Alternative Hypothesis

Ha : There is a significant relation between GDP of Pakistan and Index of K S E

Ha : There is a significant relation between Dollar price Index of KSE
Ha : There is a significant relation between Inflation in Pakistani economy and KSE
Ha : There is a significant relation between M-2 and KSE
Ha : There is a significant relation between Gold price and KSE
Ha : There is a significant relation between all these macroeconomic variables and Karachi
Stock Exchange Market.

8. Time Budget

Keeping in view of the scattered data and in order to furnish a comprehensive and detailed view
of the subject matter the approximate and expected time to complete the research work will be 05
months.
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Research Proposal submitted by Saifullah Shakir
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