exchange (4%). The KSE-100 index, which is a weightedprice index of the top 100 companies listed on the stockmarket, is usually taken as a benchmark index in Pakistan.
Rationale Of The Study
There is a consensus among macroeconomists and financetheorists that stock market prices are driven bymacroeconomic variables, the so- called “fundamentals” inthe economy. Moreover, it is also agreed that the linkageis two-way; that is, feedback exists between the stockmarket and real activity.There has been a great deal of research into thephenomenon described above in the developed economies suchas the US, the UK, Germany, Japan etc, where researchershave come up with some very informative and insightfulresults. These results have helped them explain to somedegree the behavior of their stock exchanges and in turnhave helped them make better predictions about its currentand future performance. It is only logical that suchstudies be conducted for the Pakistani stock market sothat we too can benefit from the predictive power ofeconomic variables for our stock exchanges.