The high rate of inflations rate will be resulting unsustainable economic growth.

The unsustainable economic growth has been blamed mainly on the high inflation rate (Iqbal & Zahid,1998). Iqbal,Z., & Zahid,G.M. (1998). Macroeconomic Determinants of Economic Growth in Pakistan. The Pakistan Development Review,37,125—148. The increase in cash flows supply will directly be propositional to increase in economic activities and might lead us to face inflationary and which is harmful to stock markets. It also cover the needs to increase in GDP.

A moderate increase in the money supply would be needed to accommodate increased economic activities. Too much money supply would cause inflationary expectations and is harmful to stock market. Increase money supply to accommodate increase GDP (Hsing,2011) Hsing,Y.(2011).Effects of Macroeconomic Variables on the Stock Market: The Case of the Czech Republic. Theoretical and Applied Economics, Volume XVIII , No. 7(560), pp. 53-64. The economic policies are always there to encourage growth of stock market and it has habit of triggering a financial crisis and might push the economy into recession specially when the stock market business is not going down in graph. As of this risk the specially small investor are more intresested in short term gains and don t consider long term investement.

Macroeconomic policies in determining the growth of stock market activities. Stock market always tends to trigger a financial crisis and push the economy into recession. Small investor are more interested in short term gains and ignore long term investment opportunities (Olasunkanmi & Ifeakachukwn,2011).

Olasunkanmi,I., & Ifeakachukwn,P.(2011). Stock Market Volatility and Macroeconomic Variables Volatility in Nigeria: An Exponential GARCH Approach. European Journal of Business and Management ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol 3, No.12.

Macroeconomic variables may also have a role in the determination of stock price expectations (Gay. 1973–2003..(2005 winter).. 961–974. It describes uncertainty in international transaction both in goods and financial assets (Azid. Jamil&kauser. Inflation. The exchange rate stability is the ability to deal with external financial shocks and to obtained constant economic growth. and Monetary Policy in Pakistan: Preliminary Empirical Estimates.M. . Economic Growth. & kauser. 749–775.. Exchange rate stability and country ability to deal with external shocks to maintain and achieve sustainable economic growth (Khalid. Azid. It is a conversion factor. The Pakistan Development Review 44: 4 Part II .2005).Winter). 2005).pp. Khalid...T.(2005.. It helps in conversion of currency and easily describe the uncertainity of international transactions in both good and services. The Pakistan Development Review 44: 4 Part II pp. Impact of Exchange Rate Volatility on Growth and Economic Performance: A Case Study of Pakistan.Foreign exchange rate is the price of national currency relation to another currency.A.Jamil. Exchange rate is the price of one currency relation to another.M. 2008).A. it expresses the national currency.

2011)..W.Gay. No. and short run movement relationships between KSE100 index and five macroeconomic variables. The stock market is a barometer of a country’s economy. Number 3.Y.Ahmad&Lai. Effect of Macroeconomic Variables on Stock Market Returns For Four Emerging Economies: Brazil. The stock market is an instrument or pillar of a country’s economy.When inflation rises it is likely to high monetary policy. The study used monthly data for analyzing KSE100 index. The stock market of Pakistan was initiated in the year 1947 at Karachi and KSE100 index was introduced in1991.The intent of this study was to explore long run. 3. The study used monthly data for analyzing KSE100 index. Russia. An increase in money supply results in increased liquidity available for buying security. International Business & Economics Research Journal –Volume 7..Ahmad... 6. which results in increase in the discount rate (Hosseini. and China..( 2008).Z.The determent of this study was to explore long run. India.(2011). & Lai. Hosseini.S.. International Journal of economics and Finance Vol. .. Inflation rate mainly raise as the result of high monetary policie and leading us to found increase in discount rate.M. The Role of Macroeconomic Variables on Stock market Index in China and India..R. and short run dynamics relationships between KSE100 index and five macroeconomic variables. Any Major movement in oil prices leads to uncertainties in the stock market.D. In order to investigate the long run and short run relationships. Increase in cash flows also increased in liquidity available for buying securities. The stock market of Pakistan was established in the year 1947 at Karachi. The increase in oil prices directly hits the country ecnomy quite badly as we found unsecure position in the stock market. The KSE100 index was introduced in1991.

(Khan & Gill. The major source of this volatility was political uncertainty and instability for this disaster in the stock market. leads to a contraction in economic growth. and value of trade balance on stock prices.2011). These companies are selected on the basis of market capitalization and sector Representation. 1991. inflation erodes the purchasing power of the people and hence. stock market was crashed in June 2006 when KSE100 index loosed fifteen hundred points. low rates of inflation are prerequisites particularly in developing countries. First.In this period. Several studies explored the predictability of many macroeconomic variables such as exchange rate. which have a negative effect on exports. Secondly. . The effects of inflation on economy may take the form of redistribution of income. money supply. The Board of Directors of Karachi stock exchange decided to place a floor in August 2008 which was removed in December. Stock markets are one of the most important components of modern economic structure. The Karachi stock market remained very impulsive for the last sixty months. The KSE100 Index consists of 100companies. real output. Due to variations in results. three financial disasters were observed. Firstly.The stock market is a mirror of an economy. Inflation has regressive consequences on the poverty profile of a country. The KSE100 Index was introduced in November. For the macroeconomic management. Hold of speculators and bad governance in the stock market played vital role in first two crises. inflation can damage a country’s competitiveness by leading to an appreciation of the local currency and a consequent overvalued exchange rate.2010). foreign direct investment. KSE100 index dropped nearly fourteen hundred points in the first quarter of the year 2005. In the last nine months of the year 2008. inflation. Hence. Macroeconomic condition may have significant impacts on both prices of stocks and volume traded. These companies encompass nearly 80 percent of the total market capitalization at Karachi Stock Exchange. foreign reserves. 2008. it was necessary to determine the economic factors by studying the behavior of stock market to plan a strategy that could protect the investors of stock markets varying evidences of relationship between macroeconomic variables and stock returns widely documented in the existing literature. (The Macroeconomic Variables and Stock Returns in Pakistan: The Case of KSE 100 Index International Research Journal of Finance and Economics Nadeem Sohail. terms of trade. it was found difficult to determine which specific macroeconomic variable could be consistent indicator of stock returns. In this period. highly intensive crash was observed. KSE100 index lost ten thousand points. prices of real estate. Inflation can have a series of adverse consequences for the economy. The Karachi stock exchange (KSE) was established in1947. Zakir Hussain.

E.A. J Economics.. 1 (1): 45-51 (2010) (1970-2007) Rana Ejaz Ali Khan* and The exchange rate regime is one of the central choice of the economic policy .R.Khan... & Gill.R. Determinants of Inflation: A Case of Pakistan (1970-2007).(2010).A. 1 (1): 45-51. (Determinants of Inflation: A Case of Pakistan Abid Rashid Gill**Kamla-Raj 2010 J Economics.