Macroeconomic Determinants of Market Capitalization of PSX 100 Index: An Application of VAR Approach
DOI:
https://doi.org/10.61506/01.00390Keywords:
Macroeconomic determinants, Vector Autoregressive Regression, Market capitalization, Granger CausalityAbstract
This study highlighted the significance of macroeconomic determinants on market capitalization of the PSE 100 Index in Pakistan. Market capitalization obliges as a crucial indicator of economic activities in the country. Independent variables include exchange rate, GDP, inflation, and interest rate, while market capitalization is treated as the dependent variable. Key findings from this research include utilization of VAR methodology to explore the relationships among these variables over the period from 2014 to 2023.Granger causality analysis indicating that most variables influence each other. Hypothesis testing revealing a significant relationship between interest rate and inflation, while relationships with exchange rate and GDP are found to be insignificant regarding their impact on market capitalization. Conclusion that, except for exchange rate and GDP, all variables significantly affect market capitalization. This study suggests implications for policy, recommending that the State Bank of Pakistan adopt stringent policies to enhance market capitalization. This research contributes to understanding how macroeconomic factors shape the dynamics of the stock market in Pakistan.
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