Impact of Macroeconomic Variables on Stock Market Liquidity

Abstract

In order to escalate economic growth and making healthy financial sector of any economy, stock markets play the significant role with other channels. Researchers found in their studies that for influencing stock markets, there are many economic as well as institutional determinants that enhance the performance of stock markets. In this study an attempt is made to measure the question of how much stock liquidity is influenced by macroeconomic variables in case of Pakistan. For this purpose time series data is used for analysis by considering liquidity in Pakistan stock exchange using time span from 2016 to 2020. In making an econometric model to analyze the impact on stock market liquidity, the following indicators such as industrial production growth rate, inflation, exchange rate and military expenditures are involved to make the model more realistic and statistically significant. In order to measure relationship, reliability and causality, regression technique is utilized by using quantitative data. After analyzing the results, in the end of the study the policies and implication are given in the shape of recommendation for corrective measures.