Abstract
The multidimensional impact of inflation has been widely investigated empirically.
In continuation of the same, it is argued that inflation has a strong influence over
stock market indexes. In this discussion influence of interest rate on stock market
index have also a prime importance. This paper attempts to study the impact of
interest rate and inflation on stock market index. We have taken KSE100 as
dependent variable and CPI, REER, and WALR as independent variables. We have
found CPI and WALR statistically significant at 95% level. Our results show the
value of R2 coefficient of determination as 0.70, which means that 70% variation
in KSE100 index is being explained by CPI, REER, and WALR (independent
variables). The beta coefficient of inflation shows its positive relationship with
KSE100, which means that an increase in inflation can raise the KSE 100 index
value. However, persistent inflation will eventually build high future expectations
about higher inflation, resulting in a negative impact on KSE100 index. The
coefficient of WALR shows a significant and negative relationship of WALR with
KSE 100.
Aurangzeb, Afaq Ahmed, Shujaat Mubarik. (2012) Impact of Interest Rate and Inflation on Stock Market Index: A case of Pakistan , The Journal of Humanities & Social Sciences, Volume-20, Issue-2.
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