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Okijer2012v3i5 (12) Final PDF
Okijer2012v3i5 (12) Final PDF
, 2012v3i5, 142-155
ISSN: 2229-6158
142
variables
of
the
stock
consider
when
affect
the
market.
macroeconomic
they
value
ISSN: 2229-6158
stocks.
Stock
are
these
Increase
in
interest
causes
decrease
in
stock
because
very
important
among
rate
prices
affected
when
local
currency
gets
biggest
Pakistan.
stock
exchange
market
in
143
objective
investigate
of
impact
ISSN: 2229-6158
the
study
of
interest
is
to
rate,
1.3 Hypothesis
A) Interest rate is negatively related to
stock returns.
returns.
For
this
purpose
1.4 Methodology
selected.
regressions
is
used
to
test
the
stock
returns
are
dependent
Stock
returns
will
be
comprehensive research.
144
2. LITERATURE REVIEW
Interest rate, exchange rate and inflation
have
some
influence
performance
of
(Blanchard,
1981)
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the
market.
on
stock
the
described
of
real
interest
rate
and
of
stock
market.
He
after
Federal
fund
rate
target
that
can
be
this
inverse
explained
by
rate
announcement
has
an
important
role
to
of
study
included
nominal
145
ISSN: 2229-6158
on
Jarden.
regidities,
lending
constraints
economy.
Toexamine
the
selected
method
was
and
OLS
applied
regression
to
test
the
The
applied
Generaized
An
decrease
in
inflation
positive
rate
development
demonstrated
significant
rate
and
market
slightly
fluctuates
because
of
was
capitalization
rate,
so
the
146
ISSN: 2229-6158
analyzed
impact
of
stock
prices
of
Turkey
stock
stock
among
indicated
positive
causality
among
stock
prices
and
other
exchange
rate,
foreign
reserve,
wholesale
price
index,
industrial
correlated
with
stock
147
ISSN: 2229-6158
stocks
fluctuations
macroeconomic
in
the
foremost
correlation
effect
of
between
interest
rates
returns.
They
measured
They
illustrated
that
3. RESEARCH METHODOLOGY
negatively
related,
the
risk
exchange
benchmark
for
and
work
investors
for
as
a
the
There
are
many
148
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market.
are
these
and
which
performance
very
of
share
important
affects
investors
the
among
businesses.
convert
their
Foreign
return
inflation
are
selected
as
on
Independent Variables
Dependent Variable
Interest Rate
Exchange Rate
Stock Returns
Inflation
149
3.2 Methodology
This chapter includes the research
methodology of the study.
3.3 Multiple Regression Model
Study will employ multiple regression
analysis to test the hypothesis. The
multiple regression model is:
base
year
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prices.
The
prices
are
compared with the base which is 200001. The main indicator is CPI in
Pakistan
to
measure
inflation.
It
(4.1)
S = Stock Returns
items.
INF = Inflation
(CPI is used)
= Error term
Stock return will be calculated as
(4.2)
its
150
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4. DATA ANALYSIS
website of
0.307097
R Square
0.094309
Adjusted
Square
0.067929
Standard
Error
0.088157
Observations
107
Summery output of the regression model shows that the R square is 9.4% which means
that regression model approximated 9.4% variation in dependent variable with standard
error of 8.8%. R square shows a weak relationship between independent and
dependent variables.
151
Table
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4.2:
ANOVA
Significance
Df
SS
MS
Regression
Residual
103
0.800483 0.007772
Total
106
0.883836
ANOVA shows that the overall model is significant with F value of 0.01 (F = 0.01 <
0.05). The result of ANOVA table confirmed that the predicted model is significant at 5%
significance level. Table 4.3 shows the accuracy of coefficients.
Table 4.3: Estimates of model 4.1
Standard
Coefficients Error
Intercept 1.02871
t Stat
P-value
INF
0.001662
IR
-0.06278
1.739224 -0.03609
0.971277
ER
-0.03037
0.01009
0.003288
-3.00971
negatively
related
(-0.06)
to
stock
investors.
152
5. CONCLUSIONS
This study investigated the impact of
interest rate, inflation and exchange rate
on the stock returns of KSE 100.
Results of the multiple regressions
indicated
weak
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variation
in
the
insignificant
impact
on
stock
and
forecast
the
future
153
References
Lobo, B. J. (2000). Asymmetric Effects
of Interest Rate Changes on Stock
Prices. The Financial Review , 35, 125144.
Aydemir, O., & Demirhan, E. (2009).
The Relationship between Stock Prices
and
Exchange
Research
Rates.
Journal
of
International
Finance
and
Returns,
The
Journal
of
, 2 (2), 60-66.
POON, W. C., and TONG, G. Kok.,
Output growth, inflation and interest
rate on stock return and volatility: the
EXCHANGE
predictive power
Mundell, R. (1963). Inflation and Real
Interest. Journal of Political Economy ,
71 (3), 280-283.
Rano, S. U., & Bayero, A. (2010). Does
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RATES
AND
Journal , 478-506.
Abdul.,
exchange
(2002),
rates:
Stock
Are
prices
they
and
related?
, 18 (1), 253-276.
154
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155