The Influences of Macro-Economic Factors on Capital Market Performance in Pakistan

The key determination of the present research is to examine the impact of selected major variables on stock return of the Pakistani emerging capital market Karachi Stock Exchange. The researches display that capital market is inclined by transform in major economic variables. This study observes impact of three major economic variables i.e. foreign direct investment, foreign exchange rateand inflation at Karachi stock exchange. The monthly data of ten years practice in this study. To reach the objectives, study uses the Ordinary Least Square (OLS) to estimate the correlation and regression model. The Durbin-Watson statistics 1.90 value indication that there are no serial correlations issues in study.And results show that significant negative impact of inflation and Foreign exchange rate &foreign direct investment negative insignificant impact on KSE dependent variable. And overall model good fit by probability of F-statistics which less than 5%.

2003 to January 2013 on monthly base. Applied technique the classical regression model, best linear unbiased estimates (BLUE), Augment Dickey-Fuller (ADF) and find result that interest rates (IR), there are a significant relation between stock returns (SR) and macroeconomic variables, Money supply (M1) and inflation (IR) are found to be significant relation of the Stock returns. Exchange rates (ER) have a negative impact on stock returns, while interest rates (IR) no relation long-term return. And there is positive significant relationship between Money supply (M2) on stock returns and also negative & significant impact of exchange rate on stock returns, while a positive impact of inflation on stock returns. There is no impact of Interest rates (IR) on stock returns exist in Kenya. Wasseja (NSE 20). The study worked historically annual data a period from 1980 to 2012. Researchers used technique Augmented-Dickey Fuller Unit Root Test, Johansen co-integration test, Regression, Granger-causality test and vector autoregressive (VAR) model. The result are that macroeconomic variables no significant effect on stock prices except for inflation rate; exchange rate and change in stock prices also an insignificant factor explaining part of the movement in the macroeconomic variables except for market interest rates. In regression analysis all the macroeconomic variables are jointly significant in explaining the variations in stock prices. The causality between macroeconomic variables and stock prices runs entirely in one direction from inflation rate (IR) and exchange rate (ER) to stock prices (SP) and from stock prices (SP) to market interest rates (IR) in Kenya. NAIK, P, K,.& PADHI, P,. (2012) have argued that stock return should be affected by five Independent Variables namely industrial production index (IP), wholesale price index (inflation), money supply (M3), treasury bills rates (t-bills) and exchange rates (ER) on Bombay Stock Exchange (BSE). Study collected monthly data a period from April 1994 to June 2011. Result found by used Johansen's co-integration and vector error correction model that the Indian stock market index formed significant long-run relation with three out of five macroeconomic variables tested. In the long-run, the stock prices are positively related to money supply (M3) and real economic activity represented by industrial production index (IP). Inflation has found to be negatively related to stock price index, the short term interest rate (IR), as proxies by three month government treasury bills (T-bills) and the real effective exchange rate (ER) are not turning out to be the significant determinant of stock prices. In India, the interest rate (IR) does Granger cause to stock prices in the long run but the co-integration results do not show its significant impact on stock prices although the coefficient is negative in India.
Alam, Z, & Rashid, K,. (2014) explore the interaction between Independent Variables namely inflation, industrial production, money supply, exchange rate and interest rate dependent Variable Karachi Stock Exchange 100 index. A period of secondary data collected from 2001 to 2011 on monthly base. Researchers find out result by used Johnson Co-integration test, Augmented Dickey Fuller (ADF) Unit Root Test, Phillip Perron (PP) tests and Autoregressive Conditional Heteroskedasticity Lagrange Multiplier (ARCH LM) test, that there is an impact of macroeconomic indicators on the Karachi stock market (DV) on consumer price index, money supply, exchange rates and interest rates negatively connected with the stock returns, while the industrial production index positively connected with the stock returns. All the variables were significantly connected to stock market returns except inflation in Pakistan.
Osamwonyi Researcher pertain Zivot-Andrews Unit Root Test, F-Bound Co-integration and Toda and Yamamoto Causality tests. Results found that the variables were non-stationary at levels but were stationary after first differencing. Co-integration established the existent of co-integration amongst all the variables. There is significant positive impact of Structural break (1996) on the Nigerian stock market returns in both short-run and the long-run. The Gross domestic per capita income a Key provider to increasing stock market returns and also positive impact of Gross domestic per capita income and inflation on stock market returns in Nigeria.
Issahaku, H,.Ustarz Y,.&Domanban, P, B,. (2013) examines the association between five Independent Variables namely Exchange rate, Consumer Price Index (inflation), treasury-bill rate, money supply & FDI and Ghana Stock Exchange (GSE) as a dependent Variable. The study worked period from January 1995 to December 2010 and collected data on monthly base with used technique Unit Root Test, Co-integration and Granger Causality Test. The researchers found the result that in long run, a significant relationship among stock returns and inflation, money supply and FDI. Also, in the short term significant relationship among stock returns and interest rate, inflation and money supply. There are insignificant relationships between stock returns and FDI in short-run. And a causal relationship existing between in inflation and exchange rate to stock returns has been established in study. Also, a causal relationships appeared from stock returns to FDI, interest rate, and money supply Exists in Ghana. Yunus
Implementation of the econometric Model:

Research Methodology:
The study has been conducted the secondary data to find the relationship between macroeconomic variables and stock return. In this study,econometric model Ordinary Least Square (OLS) to estimate the particular circumstances and in relation to which other variable quantities may be expressed.Data analysis performed on MS Excel and E-views statistical software. The regression technique makes use of by OLS to identify the significance &direction of relations between Karachi Stock Exchange and major economic factors.

Stock return:
Karachi stock exchange 100 index return chosen for the study based on accessibility and also reliability of data. Stock prices are obtained from Karachi stock Exchange official site and experiential on monthly basis stock Journal of Poverty, Investment and Development www.iiste.org ISSN 2422-846X An International Peer-reviewed Journal Vol. 21,2016 84 prices in the period from November 2005 to October 2015. The stock return is calculated as the monthly change in the stock price by the following formula: R (t) = (P1/P0) -1 Where R (t) the stock price in month t and P1 is current month stock price and P0 previous month stock price.

Foreign direct investment:
Foreign direct investment is eminent from assortment foreign investment, a passive investment in the securities of a different country such as public stocks and bonds. Foreign direct investment data collected from State Bank of Pakistan official site on monthly base start a period from November 2005 to October 2015. FDI calculated as the monthly value by the following formula: FDI (t) = LN (t) Where FDI (t) the value at month t and LN (t) is natural logarithm in MS excel in month (t) of FDI value.

Foreign exchange rate:
In term of finance, a foreign exchange rate, between two currencies is the rate at which one currency will be exchanged for another. Foreign exchange data obtained from State Bank of Pakistan official site and collected rate monthly base start a period from November 2005 to October 2015. Foreign exchange rate calculated as the monthly rate by the following formula: FR (t) = 1 / USD (t) Where FR (t) foreign exchange rate month t, and 1 divided by USD are equal to PKR value at month (t).

Gold prices:
All of the valuable metals, gold is the most accepted as an investment. Investors normally buy gold as a way of diversifying risk, particularly through the use of futures contracts and derivatives. The gold market is subject to conjecture & unpredictability as are other markets. Gold prices data collected from World Bank and monthly base start a period from November 2005 to October 2015. Gold price in Pakistan Rupee, 1 Troy per ounce (unit of mass (weight)) is equal to 31.1034 Grams (unit of mass in metric system) weight. Gold prices calculated as the monthly Value by the following formula: GP (t) = LN (t) Where GP (t) the value at month t and LN (t) is natural logarithm in MS excel in month (t) of the gold price.

Inflation:
Inflation, an increase in the general level of prices reduces the actual value of money, in this manner reducing the expected cash inflow from a benefit, exceptions being inflation indexed securities. The calculation of the inflation rate is the consumer price index (CPI), obtained from the State Bank of Pakistan official site. The twelve-monthly (YOY) change in CPI is given by the following formula: I (t) = CPI (t) -CPI (t-12) Where I (t) the annual change in CPI, that is, the inflation in month t, CPI (t) is the CPI in month t and CPI (t-12) is the CPI in the same month of the previous year time period.