This paper examines the causal relationship
between money supply and stock prices. The analysis
indicates a long-run relationship between stock prices and
money supply. The analysis further indicates unidirectional causality from Money Supply to KSE 100 Index
both in the short run and in the long run. This implies that
the stock market is not efficient with respect to M2 and
past information regarding monetary assets can be helpful
to predict movements in stock prices.