Understanding The Dynamics: Fiscal Deficit, Macroeconomic Variables, And Crisis Impact On Stock Prices In Pakistan's Equity Market

Abstract

The objective of this study is to examine the impact of fiscal deficits, macroeconomic variables, and crises on the sensitivity index of stock prices on the Pakistani Stock Exchange. The study examines the correlation between the years 1980 and 2018. The time series model in this study was computed utilising the Auto-Regressive Distributed Lag (ARDL) methodology. The study's findings highlight the significant influence of fiscal deficits, money supply, taxation, inflation, foreign direct investment, exchange rates, and crises on the long-term values of stock exchanges. Over an extended period, there exists a tenuous and statistically insignificant link between the unemployment rate and the volatility of stock prices. The study findings suggest that the relationship between the variables remains stable throughout both the short term and the long term. The first results suggest that the unemployment rate does not significantly influence the behaviour of investors in both the short and long term, particularly in the case of the Karachi Stock Exchange, currently referred to as the Pakistan Stock Exchange. The government should enact appropriate strategies to improve the fiscal deficit in accordance with present requirements.