Impact of Budget Deficit and Inflation on Stock Market Returns: An Empirical Study of Pakistan
DOI:
https://doi.org/10.61506/01.00444Keywords:
Budget Deficit, Inflation, Stock Returns, Karachi Stock MarketAbstract
This paper examines the impact of budget deficits and inflation on stock returns in the context of Pakistan. The paper further investigated whether the stock market is the true indicator of the economy and whether the economy is strongly affected by budget deficits and inflation. Budget deficit and inflation both correlate with each other (Laopodis, 2006) and harms stock market returns. This paper tested the effect of the past seventeen year’s budget deficit and inflation on stock returns by using the unit root test and auto regressive distributive lag (ARDL) model, the results and findings of the research show a significant negative impact of budget deficit on stock returns and insignificant negative impact of inflation on stock market returns.
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