Asymmetric Effect of Macroeconomic Variables and Their Volatilities on Stock Return: A Case Study of Pakistan
Author: Zaid Ashraf

This study employs ARDL bound test to test that whether positive and negative changes in economic indicators affect stock market symmetrically. To study the asymmetry of economic indicators explicitly interest rate, prices, exchange rate, money supply, and output on stock return, non-linear autoregressive distributed lagged model (NARDL) is employed on Pakistan’s data from January 1997 to December 2016. Analysis is divided into two parts ( ) change in stock return due to positive and negative change in macroeconomic variable ( ) and change in stock return volatility due to positive and negative change in volatilities of macroeconomic variables. Study found that volatility of exchange rate and interest rate have asymmetric effect on stock return in long run and short run as well. Also, output and its volatility have asymmetric impact on stock return in long run only. Findings of the study support the view that impact of good news is not same as bad news. Therefore, it is recommended to consider the asymmetric impact of macroeconomic variables in process of policy making Supervisor:- Dr. Hafsa Hina

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Supervisor: Hafsa Hina

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