Author

  • Amina Malik

    • COMSATS University Islamabad, Wah Campus, Pakistan
    • Pakistan

  • Babar Zaheer Butt

    • Post Doctorate Research Fellow, Tohoku University of Community Service & Science, Japan
    • Japan

  • Haroon Aziz

    • All Pakistan Textile Mills (APTMA), Pakistan
    • Pakistan

Abstract

The state of any stock market is dependent on the economic and financial conditions prevailing in the country and can be used to see the mirror image of collective disposition in financial and economic terms. Therefore, this study examines the dynamic relationship between macroeconomic variables and stock prices in Pakistan in the COVID-19 pandemic scenario. For this purpose, monthly data has been taken from Jan 2019 to June 2021 and divided into Pre-COVID, COVID and overall periods. Data related to economic variables and stock prices have been retrieved from various sources including Statistical Reviews & Bulletins of State Bank of Pakistan, Karachi Stock Exchange and Pakistan Economic Survey. To assess the relationship between economic variables and stock prices, Cointegration, Granger-causality and Impulse Repose Function Tests have been applied on three data series. The results of the study reveal that there is a long-term equilibrium relationship between all economic variables and stock prices in the Pre-COVID period. However, most of the economic variables do not have such a relationship during the COVID period and the pattern of the relationship is almost the same in the overall period. Even the short-run dynamic relationship between economic variables and stock returns is affected by the pandemic. The results show that economic variables affect stock returns differently in the COVID situation than in the Pre-COVID scenario and it also affects the short-run relationship in the overall period. This research study provides imminent findings on the linkage between macroeconomic variables and stock prices in the Pakistani context. It helps investors and regulators in customizing their decisions and macroeconomic regulations respectively to improve the financial and economic stability of the country in the wake of the pandemic. Keeping in view the findings and implications of this study, investors and stakeholders need to weigh the uncertainty associated with COVID-pandemic before making investment decisions.

Keywords

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How to Cite

Malik, A., Butt, B. Z., & Aziz, H. (2022). COVID-19 Entwined the Dynamic Relationship between Stock Returns and Macroeconomic Variables. Information Management and Business Review, 13(4(I), 11-22. https://doi.org/10.22610/imbr.v13i4(I).3272

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Research Paper

Published in

Vol. 13 No. 4(I) (2021) Presumptive Tax, Macro Shocks & Growth Models View issue contents

Published

2022-03-08

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