The investigations of long and short-term relationships between macroeconomic variables and stock markets: Evidence from China and Pakistan

Abstract

The motivation behind this research study is the pragmatic examination of associations existing between the stock markets of (SSE), (KSE-100) and macroeconomic variables (Balance of trade, Unemployment rate, Inflation rate, Broad supply of money, and Foreign direct investment) using the annually time series informational data set for the period cover from January 1995 to December 2019. The key objectives of this examination are to check the long and short-term association between the macroeconomic variables and both stock market returns by utilizing different methods and strategies. The results of the unit root test specified the primary series is not stationary at a level and becomes stationary in the first difference. On an annual basis through utilizing the Fisher combined Johansen co-integration test and Vector Error Correction (VCM) technique, it shows that both stock markets had a long-term equilibrium association with macro variables and short-run dis equilibrium adjusted at 6.78%. These findings are valuable for stock exchange editors, financial analysts, policymakers, shareholders, and investors as well as for the Government.