Impact Of Monetary Policy On Stock Market Liquidity
Author: Zain Shamshad

This current study has examined the relationship between monetary policy and market liquidity for Pakistani equity market from 2000 to 2019 by using monthly data. Broad money (M2) and interest rate (treasury bill rate TR) are used to capture the effect of monetary policy, value traded is used as a proxy of market liquidity and foreign portfolio investment (FPI), index of industrial production (IIP), exchange rate (EX) are used as independent variables. All variables are taken in log form to make them unit free. Autoregressive Distributed lag (ARDL) approach is used to assess the long-term and short-term causal relationship. The findings of the study show that broad money and exchange rate are insignificant in long run but foreign Portfolio Investment and Ttreasury Bill Rate have negative and significant relation in the long run. In the short run liquidity has negative and significant relation with treasury bill, foreign portfolio with lag 2 and exchange rate with lag 1. The results indicate that high interest rates discourage the foreign portfolio investment. Monetary policy committee should decrease the interest rate that will increase the liquidity of stock market. Supervisor:- Dr. Ahmad Fraz Co-Supervisor:- Dr. Arshad Hassan

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Supervisor: Ahmed Fraz
Cosupervisor: Arshad Hassan

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