EMERGING STOCK MARKET PERFORMANCE AND MACRO ECONOMIC FUNDAMENTALS: EVIDENCE FROM PAKISTAN STOCK EXCHANGE

Abstract

This research investigated the impact of macroeconomic factors and South Asian stock markets on the performance of Pakistan's stock market, specifically using the KSE-100 Index. The study analyzed how fluctuations in exchange rates (USD/PKR, CNY/PKR, EUR/PKR), foreign direct investment (FDI), and balance of trade (BOT), influenced the performance of Pakistan’s stock market. The study is quantitative in nature, utilizing monthly data for the period from July 2014 to June 2024. In order to measure the impact of these variables, multiple regression analysis is utilized. The present study uses ARIMA model, which is an appropriate and widely applied methodology in time series forecasting in order to predict future trends in the performance of Pakistan stock market. The study aims to contribute to the financial markets literature in developing economies through actionable recommendations that can be implemented in improving the resilience of the market and contributing to economic development of Pakistan. The findings indicate that exchange rate fluctuations have a significant impact on KSE-100 performance. Foreign direct investment (FDI) was also identified to be in a positive relation with stock market performance. Balance of Trade (BOT) was also seen as yet another determinant of the performance of stock markets. Evidence shows that a trade surplus (surplus exports - imports) positively affects the return to stock markets by signaling economic prosperity and reinforcing investors' confidence.