Macroeconomic Factors and Equity Prices - Pakistan Institute of ...

correction model and . CUSUM and CUSUMSQ are with in the critical bounds of 5% that
indicates that the model is structurally stable.
This study facilitates the investors in taking effective investment decisions as by estimating the
expected trends in exchange rates , money supply and interest they can estimate the future
direction of equity prices and can allocate their resources more efficiently. Efficient market
hypothesis provides that capital markets respond to arrival of new information so
macroeconomic policies should be designed keeping in view the response of the capital market.
Therefore, architects of monetary policy should be careful in revision of interest rates as capital
market responds negatively to such decisions. Similarly, State Bank of Pakistan should also
consider the impact of money supply on capital markets as has significant relationship with
dynamic of equity returns.
6. References
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