Zaeema Majeed

 THE IMPACT OF MACROECONOMIC VARIABLES ON KSE 100 INDEX RETURN(EVIDENCE: FROM KARACHI STOCK EXCHANGE) Submitted by: ZAEEMA MAJEED Submitted to: MAM SAMRA In the partial Fulfillment for the Degree of Master of Sciences (Accounts & Finance) LAHORE SCHOOL OF ACCOUNTANCY & FINANCE The UNIVERSITY OF LAHORE (2016) The University of Lahore Lahore School of Accountancy & Finance Supervisory Committee We the Supervisory Committee, certify that the contents and the form of thesis Submitted by Zaeemamajeed have been found satisfactory and recommend it for the evaluation of the External Examiner for the award of degree of MSc (A & F). Supervisor Co-Supervisor Member   The University of Lahore Lahore School of Accountancy & Finance Plagiarism evaluation report This is to certify that I have examined the Turnitin report of the thesis entitled “The impact of macro-economic variables on KSE100 index return (evidence from Karachi stock exchange ) The thesis contains no text that can be regarded as plagiarism. The overall similarity index obtained from the Turnitin software is 12%. _____________ Supervisor The University of Lahore Lahore School of Accountancy & Finance Undertaking I (ZaeemaMajeed, MAF- ) declare that the contents of my thesis entitled “The impact of macro-economic variables on KSE 100 index return (evidence from Karachi stock exchange )” are based on my own research findings and have not been taken from any other work expect the references and has not been published before. I also undertake that I will be responsible for any plagerization in this thesis. ______________ Student’s Name The University of Lahore Lahore School of Accountancy & Finance Dedication I dedicate this research work to my subject teacher who never failed to teach and guide me, to my family who supports me in everything, to my friends who helped me finished this project, and most of all to the Almighty God who gives me strength and good health while doing this. This thesis is dedicated to my father (late), who taught me that the best kind of knowledge to have is that which is learned for its own sake. It is also dedicated to my mother, who taught me that even the largest task can be accomplished if it is done one step at a time. The University of Lahore Lahore School of Accountancy & Finance Acknowledgment In the name of Allah, the Most Gracious and the Most Merciful Alhamdulillah, all praises to Allah for the strengths and their blessing in completing this thesis. Special appreciation goes to my supervisor was sir Amir Iqbal and Mam Samrafor their supervision and my all friends and class mates for constant support their invaluable help of constructive comments and suggestions throughout the experimental and thesis works have contributed to the success of this research. Thanks for the friendship and memories. Last but not least, my deepest gratitude goes to my beloved parents for their endless love, prayers and encouragement. Thank you very much. TABLE OF CONTENTS CHAPTER 1 1.1 INTRODUCTION8 1.2 KSE8 1.3 KSE 100 index9 1.4 Free Float9 1.5 GDP9 1.6 Inflation10 1.7 Exchange rate10 CHAPTER 2 2.1 LITERATURE REVIEW11 2.1.1 The impact of macro-economic variables on KSE 100 index return11 2.1.2 Inverse relationship of discounted cash flows on interest rate KSE 100 index Return and exchange rate14 2.1.3The impact of capmarbitrage pricing theory and PVM on KSE 100 index return15 CHAPTER 3 3.1RESEARCH METHODOLOGY19 3.1.1 Theoretical framework 19 3.2 Independent variable 19 3.2.1 Exchange rate19 3.2.2 Inflation19 3.2.3 GDP20 3.3 Dependent variables21 3.3.1 KSE 100 INDEXES21 3.4 Research design 21 3.4.1 Hypothesis21 3.5 Sources of data22 3.6 Statistical tool adopted22 3.7 Descriptive statistic22 Mean22 Median 22 Mode23 3.8 Range 23 3.9 Regression23 3.10 Co-relation23 3.11 Skewness24 3.12 Kurtosis24 3.13 Population24 3.14 Sample size24 3.15 Instrumentation 24 CHAPTER 4 4.1 RESULTSInterpretaion25 4.11 Descriptive analysis 25 4.12 Correlation.Analysis26 4.13 Regresion analysis26 CHAPTER 5 5.1CONCLUSION 29 REFERENCES30 APPENDIX 33 Abstract The study looks at the relationship between KSE 100 file return and macro-economic variables. The study used the annually data from-. Descriptive statistic, Regression analysis and Correlation analysis were The study looks at the relationship between KSE100 file return and software used for test is E-view 8 .The dependent variables is KSE 100 index return and the independent variables is Exchange rate ,Gross domestic product and Inflation. Exchange rate has significant Correlation with KSE 100 index return (RM) while GDP and Inflation has insignificant correlation with KSE100 index return. Keywords; Macro-economic variables, KSE100 index return, Descriptive Statistics, Regression Analysis and Correlation Analysis. CHAPTER: 1 1.1Introduction Capital business sector has an essential part in budgetary division of a nation economy. Proficient capital business sector balances out money related division and energize monetary development which give critical venture opportunity that add to pull in local and outside capital. By (1970) proficient business sector is one where stock costs rapidly modify with distributed data in business sector, so there is no utilization of chronicled data and speculator can't foresee future stock cost, and the business sector ought to respond to accessible new data. The relationship between full scale monetary variables and KSE100 record is being concentrated on by various researcherlike ( Salman (2011), Ali and Rashid (2010), Sajjad et al,(2012), Jasra et al,(2012), Fatima and Waheed(2011), Sohail and Hussain (2009) etc in which they discuss about the GDP, Inflation rate and exchange rate has impact on KSE 100 index. To investigate the relationship between macro-economic variables ( Inflation, Exchange rate and GDP) and stock return to main theory support it which are arbitrage pricing theory ( Ross 1976) and Discounted cash flow or Present value theory. APT (Ross 1976). In modern days Investors invest their capital in KSE stock market to gain high return then that of fixed income base system (banks interest). For economic-growth in any country its stock exchange plays a vital role. Karachi stock exchange is a central stock exchange of Pakistan which also play an important role in development or growth of economy of Pakistan. 1.2Karachi stock exchange (KSE): Karachi stock exchange is a stock exchange is located at stock exchange building on stock exchange road, in the heart of Karachi’s business district. Chundrigar road Karachi, Sindh Province of Pakistan. In 2015 it is incorporated in shape of Pakistan stock exchange along with two others stock exchange (ISE, LSE). According to Bloomberg, the Pakistani benchmark stock market index is the third biggest performer in the world since 2009. In June 2015 Khaleej time reported that since 2009, the Pakistani equities delivered 26% a year for US dollar investor making Karachi the best performing stock exchange in the world. 1.3 KSE 100 INDEX The KSE-100 Index was introduced in November 1991 with base value of 1,000 points. The Index comprises of 100 companies selected on the basis of sector representation and highest free-float capitalization, which captures over 80% of the total free-float capitalization of the companies listed on the Exchange. 35 companies are selected i.e. one company from each sector on the basis of the largest free-float capitalization and the remaining 65 companies are selected on the basis of largest free-float capitalization in descending order. This is a total return index i.e. dividend, bonus and rights are adjusted. It is revised after every six months for inclusion or exclusion of companies on the basis of above mentioned criteria. 1.4 Free Float: Free-Float is the proportion of total paid-up shares issued that are readily available at a Stock Exchange. These shares held by controlling directors, sponsors, promoters, government and other locked-in shares which are not provide for trading. During 2012, the governing board of directors of the Karachi Stock Exchange decided to apply the KSE-100 Index on the basis of free-float market capitalization rather than of total market capitalization. 1.5 GDP The economy of Pakistan is the 26 largest in the world on the basis of purchasing power parity (PPP), and 41th largest on basis of nominal gross domestic product. The population of Pakistan is over 190 million (6th largest in the world), giving it nominal GDP per capita of $ 4993, which ranks 133th in the world. Gross domestic product (GDP) is a monetary measure of the value of all final goods and services produced in a period (yearly, quarterly). GDP express the performance of a country or region, however nominal GDP do not reflect the difference in an economy of any country, and itpresents the inflationary effect on the economy. Therefore using GDP per capita basis is important or arguable more useful when comparing difference in economies of different nation.GDP can be evalute in three ways, of which should, in principal provide the same result. 1.6 Inflation Inflation is a steady increment in the value level after some time. On the off chance that the cost level increment in a solitary bounce yet does not keep rising, the economy is not encountering expansion. An expansion in the cost of a solitary decent, or in relative costs of a few merchandise, is not swelling. On the off chance that swelling is available, the costs of all merchandise and administrations are expanding. Swelling dissolves the buying force of a money. Swelling favors borrowers to the detriment of moneylenders since when the borrower gives back the important to the bank, it is worth less as far as merchandise and administrations (in genuine terms) than it was worth when it was acquired. Expansion that quickens out of control2is alluded to as hyperinflation, which can crush a nation money related framework and realize social and political changes. The expansion rate is the rate increment in the value level, ordinarily contrasted with the earlier year. Examiners can utilize the expansion rate as a business cycle pointer and to foresee changes in national bank fiscal arrangement. 1.7 Exchange rate Money trade rates are given as the cost of one unit of cash regarding another. An ostensible conversion scale of 1.44 USD/EUR is translated as $1.44 per euro. We allude to the USD as the value money and the EUR as the base coin. An abatement (increment) in an immediate conversion scale speaks to a thankfulness ( devaluation) of the local money with respect to the remote coin. A spot conversion scale is the rate for quick conveyance. A forward swapping scale is a rate for trade of monetary standards at some future date. A genuine swapping scale measures changes in relative obtaining control after some time Real exchange rate ( domestic/foreign) = spot exchange rate ( domestic/foreign)× CPI foreign÷ CPI domestic. Problem statement The stock prices are reliable to predict macroeconomic variables as well as stock market fluctuations. Research question: Is there any significancantpimpact of macroeconomic variables on stock price? How macro-economic variables influence the stock price? Research Objective: To check the impact and relation of MACRO ECONOMIC VARIABLES with the stock PRICE To determine relationship between MACRO ECONOMIC VARIABLES and stock PRICE Significance of the study: This article will provide help to new investor as well as existing investor to better understand the importance of macroeconomic variable can generate the high return. CHAPTER: 2 2.1Literature review 2.11The impact of macro-economic variables on kse 100 index return Salman (2011) had conducted the study on impact of macro-economic variables on stock prices. The stock price is dependent variable and the independent variables is exchange rate, interest rate,inflation and GDP. In this regard the researcher used the pearsonitem development relationship coefficient and various relapse models. The specialist utilized the information for the period of-. At the end the researcher conclude on the basis that the coefficient correlation is utilized to establish that the general model is great fitted or not. It demonstrates the aggregate variety in autonomous variables. According to Ali and Rashid (2010) has conducted the study on impact of macro-economic variables and stock prices. The paper focuses on the determinants of inflation in Pakistan using four price indicators, i.e. CPI, WPI, SPI, and GDP Deflator for the long-run. And the independent variables is stock price. The researcher obtained time period-). The researcher used the regression model. At the end result indicate that depreciation of exchange rate and increase in the value of imports has contributed shooting up of CPI, WPI, SPI and GDP deflator. The support prices of sugar-cane, rice, wheat, and cotton (collectively) have affected all the indicators positively however, the support price of wheat independently has affected only GDP deflator. Expectation effect has also contributed positively towards all the indicators. Sajjad et al,(2012) evalute the connection between stock prices and macro-economic variables. The dependent variables is stock price and the independent variables is inflation rate, exchange rate, treasury bill and interest rate. The researcher took montly time series data from-. In this respect the researcher used co-integration test and Granger causality have been applied to drive the short and long run investigation. At the end the researcher concluded on the basis that bi directional Granger causality among KSE and exchange rate and One way Granger causality exists among KSE and interest rate, no Granger causality found among KSE and inflation rate and KSE and treasury bills. Which means performance of macro-economic variable somehow affects the stock index; moreover, stock prices in Pakistan do not reflect the macro-economic condition of the country. Jasra et al,(2012) had conducted the study on impact of macro-economic variables on stock prices. The researcher used Regression analysis. The dependent variables is stock price and the independent variable is interest rate, exchange rate, and consumer price index. In this study the researcher used the Quartely data for 3 variables for the period from January 2004 to December 2010 was used. The objective behind collection of Quartely data was to have in depth analysis of these variables.. The researcher concluded that impact of interest rate on oil and gas, chemical and cement industry are insignificant. While insurance industry has significant effect. When the impact of CPI is determined it evaluate significant effect on oil and gas chemical cement and insurance industry. While the exchange rate showed significant negative effect on all 4 industries. Fatima and Waheed(2011) considered the relationship macro-economic uncertainity investment and economic growthis an emirical issue in developing countries.The researcher took data from 1975 to 2008. The researcher used the accelerator model of investment and endogenous growth model .In this respect the researcher used the dependent variable is stock price and the independent variable is growth. At the end the researcher concluded that reduction in macro-economic uncertainitythroughtappropriatefiscal and monetary policy, stability in capital inflows and improved trade performance could result in high investment and sustainable economic growth in the country. According to Sohail and Hussain (2009) gathered information from the past published papers and studied the literature review done in the period from december 2002 to une 2008. The researcher took monthly data . The dependent variable is stock price and the independent variable is consumer price index, industrial production index, Exchange rate, Money supply. The researcher used statistical tool is co-integration model and unit root test. Ahmed et al,(2012) evalute the causal relationship between stock prices and the variables representing the real sector of the economy like real GDP and real investment, in Pakistan. The researchers used annual data (quarter-wise) from December, 1980 to June, 2007 and the researcher apply the simple correlation analysis, to investigate the relationship.The researcher conclude that The correlation analysis shows low correlations between stock prices and macro variables. However, there is evidence of significant increase in these correlations in the period subject to reforms, suggesting that these reforms resulted in significant improvement in the behaviour of stock market and its linkages to the economy. Rashid et al,(2011) used the Integrated Generalized Autoregressive Conditional Heteroskedasticity (IGARCH) model to explore the impact of inflation on the conditional stock exchange volatility in Pakistan using monthly data of KSE-100 index and CPI . The researcher obtained data from July 2003 to June 2007. The study finds no evidence for the impact of inflation on stock exchange volatility in Pakistan. However, it is verified that change in inflation has significantly high power of explaining stock exchange volatility in Pakistan although its magnitude is relatively small as indicated by the low value of the coefficient. According to Haroon and jabeen determined(2013) the relationship between impact of macroeconomic variables i.e. 3-Months, 6-Month and 12 Month Treasury Bill Rate (Proxy of Interest Rate), Consumer Price Index, Wholesale Price Index and Sensitive Price Index (Proxy for Inflation) with Karachi Stock Exchange—KSE 100 Share index. The researcher took Monthly data has been collected from the period of July 2001 to June 2010. In this respect the researcher used .Coefficient of correlation and regression analysis d to test the hypothesis. At the end the researcher concluded on th basis that there was significant relationship between macroeconomic variables and KSE-100 Share index. Ansar and Asghar(2013) has investigated the stock prices. The researcher futhure discuss its impact of oil prices on the Consumer price index KSE 100 index . The dependent variable is stock price and the independent variable is consumer price index , KSE100 index . The researcher used co-integration model. The researcher took data from-. The result indicate that there is a positive relationship among oil price,consumer price index and KSE100 index. 2.12Inverse relationship of discounted cash flow on Interest rate kse 100index return and Exchange rate Ahmed et al, (2014) has investigated stock prices.The researcher futhure discuss its impact on macro-economic variables on stock prices clear and reliable information. The dependent variable is stock price and the independent variable is interest rate, Exchange rate, Inflation rate,GDP. In this respect the researcher used the Ganger causality and co-integration tests. The researcher gathered information from the past published papers and studied the literature review done in the period from-. The researcher used monthly data. At the end researcher concluded on the basis of his studies that there is no relationship between dependent variable and Explanatory variables in short run. On the other hand the result indicate that there is strong relationship in long run. Kamran and Ahmed (2015) evalute the relationship between macro-ceonomic variables and stock price. The dependent variable is stock price and the independent variable is imports of goods and services. Export of goods and services. Sample period consists of 5 year period beginning at the start of 2005 and end ending at the close of 2009 at the end. The researcher used co-integration model.. The researcher concluded that there is a relationship between fluctuation of stock prices and the economic indicators and hence in Pakistani scenario it can be said that the true predicator of economic activities. Sulmanand Ali (1991) consider several Quarterly data for different macro-economic variables. The dependent variable is stock price and the independent variables is foreign exchange reserve, foreign exchange rate, industrial production index, whole sale price index, gross fixed capital formation and broad money M2. In this regard the researcher used Auto Regressive integrated moving average model testing. At the end the researcher concluded on the basis that the inside component of firm such as expansion underway and capital arrangement immaterial while outside variable such as M2 and remote trade influence decidedly. 2.13 The impact of CAPM, Arbitage Pricing theory and PVM on kse 100index return Akhbar et al,(2011) examines the relationship between KSE100 index and macro-economic variables. In this respect the researcher took data in January 1999 to June 2008. The researcher used co-integration Ganger causality and error correction tests. The dependent variables are stock price and the independent variables is money supply, interest rate, inflation, and foreign exchange reserve. At the end the researcher concluded on the basis that co-integration tests recommended that stock price and full scale financial variables were co-incorporation and that no less than a uni-directional causality exists between the two arrangements of variables. The future recommended that stock costs were emphatically related with macro-economic variables. Iqbal et al,(2013) present study intend to examine the relationship of macroeconomic variables on stock returns in Pakistan. The study utilized month to month information from January 2001 to December 2010. For information examination distinctive econometrics model were utilized, for example, auto backward circulated slack (ARDL), expanded dickey more full (ADF), vector mistake amendment model (VECM) are utilized. The study found that there is short and in addition long run relationship exists between macroeconomic variables and stock returns.The dependent variable is stock price and the independent variable is Money supply, exchange rate, and consumer price index. At the end researcher concluded that Cash supply, swapping scale, and buyer value file have huge long run association with stock costs, while oil costs have no essentialness relations with stock returns. In short run cash supply and trade has positive critical connection with stock returns, while buyer value file and oil costs have no noteworthy connection with stock returns Khalid et al,(2011) considered the relationship between macro-economic variables and stock return. Thedependent variable is stock return and the independent variable is n, Inflation rate, X-rate, Till,. The researcher used unit root test co integration, Granger Causality, The researcher obtained the Treasury bill and Stock return is taken from the period of January 2000 to December 2010.At the end result show that thereno co-development exists in the middle of variables and KSE return. The aftereffect of relationship shows that there is no significant positive correlation among these variables. There is insignificant positive connection between's T-Bill and swelling and Tbill&X-Rate. The outcome demonstrates 5that X Rate granger causes the RM. Also swelling granger causes the T-Bill. The aftereffect of motivation capacity reaction demonstrated that adjustments in stock costs of KSE are because of without anyone else's input. T-bill applies weight on swelling Ahmad et al (2011) examine the relationshipbetween macro economic variables and stock prices. The dependent variable is stock price and the independent variable is money supply economic growth inflation exchange rate. The researcher used ARIMA model, arbitrage pricing theory and the researcher obtained the data from 2000 to 2007. At the end study finds a negative and significant impact of inflation and exchange rate on the stock prices and a positive but weak impact of economic growth on the stock prices at Karachi Stock Exchange. The relationship of money supply with stock prices however, was found to be positive but insignificant. Irfan et al,(2008)evaluate the long run relationship between macro-economic variables and stock price. The researcher considered monthly data. The dependent variable is stock price and the independent variables is real foreign exchange rate, foreign exchange reserve, industrial production index, whole sale price index, gross fixed capital formation and board money M2. The researcher obtain these variables from-. The researcher applied co-integration test. At the end result indicate that foreign exchange rate and foreign exchange reserve effects significantly to stock market. The result also shows that there was positive relationship between GFCF and M2 while WPI is negative relationship with stock price. The result also highlighted that interest rate is insignificant with stock prices in the long run Nauman and Zaman(2009) determined the relationship between stock prices and macro-economic variables. The dependent variables is stock price and the independent variables is GDP, CPI, exports, money supply M2, exchange rate FDI, oil prices. The researcher used the linear multiple regression and correlation model. The researcher considered annual data from-. At the end the researcher concluded that GDP and exchange rate positively affect stock prices while the CPI negatively affects stock prices. The result of export, money supply M2, FDI and oil prices indicate were insignificant. According to Aamir et al (2012). This study was to investigate the long and short run relationship between macro-economic variables and stock prices. The dependent variable is stock price and the independent variables is exchange rate ,foreign exchange reserves, industrial production index, interest rate, imports ,money supply, export and whole sale price index. The researcher took data-. The researcher used unit root test, co-integration test, error correction model, and granger causality test. The FER,IR,MS,and WPI showed a positive and significant relationship with stock prices while ERand X indicate a negative and insignificant impact on stock prices but IPI has a negative but siginificant relationship with stock prices. Ahmed et al,(2002) had conducted the study on impact of macro-economic variables on stock prices. The dependent variable is stock price and the independent variables is foreign direct investment, trade and domestic . In this respect the researcher used Granger non-causality tests. The researcher also gathered information from the past published papers and studied the literature review done in the period from 1972 to 2001. The finding indicate the foreign direct investment,domestic output nexus. According to Hussain (2006) evaluate the connection between stock prices and the variables representing the real sector of Pakistani economy. The dependent variables is stock prices and the independent variables is gross domestic product, real consumption expenditure and real investment spending. The researcher took data from 1959/60 to 2005/2005. In this respect the researcher used to examine the stochastic properties of the variables. The analysis indicates a one way causation from the real sector to stock prices implying that the stock market in Pakistan is still not that developed to influence the real sector of the economy. Basit(2011) determined the relationship between macro –economic variables and stock prices .The researcher obtained the dependent variable is oil price and the gold price and the independent variables is KSE100 index. The researcher took the oil prices and the gold prices for the time period 2005 to 2011. The researcher applied the simple regression models separately for both dependent variables and concluded that there is no obvious relationship in these variables. Salman Khan (2011) examines the relationships between the KSE-100 index and a set of macroeconomic variables. The researcher obtained sampling period from (1992) to (2011). In this respect the researcher used dependent variable is KSE 100 index and the independent variable is exchange rate, inflation and GDP (Gross domestic product). The researcher used  Statistical tools i.e. Multiple Regressions and Pearson’s correlation models. At the end result indicate that exchange rate, inflation and GDP (Gross domestic product) growth rate were positively related with stock prices (KSE-100index). While negative impact found on the stock prices of KSE-100 index of the interest rate. Mgammal and Mahfoudh(2012) examine the relationship between macro-economic variables and stock prices. The dependent variable is stock market and the independent variable is exchange rate. The study applies monthly and quarterly data on two gulf countries, including Kingdom Saudi Arabia (KSA) and United Arab Emirate (UAE) for the period January 2008 to December 2009. The results of this study in the short term found that the exchange rate influence positively on the stock market price index for United Arab Emirate and there is no association between them for Kingdom Saudi Arabia.  Moreover the study in the long term found that the exchange rate influence negatively on stock market price index for the United Arab Emirate. While no association between these variables in Kingdom Saudi Arabia. According to Khan et al,(2008) determined the relationship between macro-economic variables and stock prices. In this respect the researcher used the Granger causality and co –integration test. The dependent variable is stock price and the independent variables is inflation money supply .The researcher also gathered information from the past published papers and studied the literature review done in the period from-. At the end the researcher concluded on the basis Co integration and Granger causality tests reveal that long run equilibrium relationship exists between inflation and money supply and stock prices, whereas short run relationship exists between inflation, exchange rate and money supply and stock prices of most industries. Chapter:3 3.1Research Methodology 3.11Theoretical Frame work 3.2 Independent variables 3.21 Exchange rate Rate at which one currency may be converted into another. The exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates, inflation, and the state of politics and the economy in each country.also called rate of exchange or foreign exchange rate or currency exchange rate. 3.22Inflation: Inflation is a diligent increment in the value level after some time. On the off chance that the cost level increment in a solitary hop however does not keep rising, the economy is not encountering expansion. An expansion in the cost of a solitary decent, or in relative costs of a few products, is not swelling. On the off chance that expansion is available, the costs of all merchandise and administrations are expanding. Expansion dissolves the buying force of a cash. Swelling favors borrowers to the detriment of loan specialists since when the borrower gives back the vital to the bank, it is worth less regarding products and administrations (in genuine terms) than it was worth when it was acquired. Expansion that quickens out of control2is alluded to as hyperinflation, which can annihilate a nation fiscal framework and achieve social and political changes. The expansion rate is the rate increment in the value level, regularly contrasted with the earlier year. Experts can utilize the expansion rate as a business cycle pointer and to expect changes in national bank fiscal strategy 3.23Gross Domestic Product (GDP): Total national output (GDP) Gross household item is the aggregate business sector estimation of the products and administrations delivered in a nation inside of a specific time period. Gross domestic product is the most generally utilized 2measure of the span of a country economy. Gross domestic product incorporates just buys of recently created merchandise and administrations. The deal or resale of merchandise delivered in pervious periods is rejected. Exchange installments made by the legislature (e.g, unemployment, retirement3and welfare advantages) are not financial yield and are2not incorporated into the estimation of GDP. The qualities utilized as a part of computing GDP are business sector estimations of definite merchandise and administrations that is, merchandise and administrations that won't be exchanged or utilized as a part of the creation of different products and administrations. The estimation of the PC chips that Intel makes is not unequivocally incorporated into GDP; their value2is incorporated into the last costs of PCs that utilization the chips. The estimation of a Rembrandt painting that offers for 210 million euros is excluded in the count of GDP, as it was not delivered amid the year Gross domestic product can be calculated using the following formula: GDP = C + G + I + NX where C is equal to all private consumption, or consumer spending, in a nation's economy, G is the sum of government spending, I is the sum of all the country's investment, including businesses capital expenditures and NX is the nation's total net exports, calculated as total exports minus total imports (NX = Exports - Imports). 3.3 Dependent variable 3.31 KSE 100 index Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period. In determining representative companies to compute the index on, companies with the highest market capitalization are selected. However, to ensure full market representation, the company with the highest market capitalization from each sector is also included. Number Company Name Weight (%) Market Capitalization (PKR Millions) 1 Oil and Gas Development Company-,193 2 MCB Bank Limited-,729 3 Fauji Fertilizer Company Limited 8.86 80,490 4 Pakistan Petroleum 8.76 79,521 5 Pakistan Oilfields 6.31 57,352 6 Hub Power Company 6.16 55,987 7 Engro Corporation 4.35 39,551 8 United Bank 4.35 39,473 9 Pakistan State Oil 4.14 37,644 10 Lucky Cement 3.41 30,956 3.4 Research design 3.41Hypothesis The research study will be conducted to test the following hypothesis H1; There is significant impact between GDP and Stock price. Ho; There is Insignificant impact between GDP and Stock price. H1; There is significant impact between Inflation and Stock price. Ho; There is Insignificant impact between Inflation and Stock price. H1; There is significant impact between Exchange rate and Stock price. Ho; There is Insignificant impact between Exchange rate and Stock price. 3.5 Source Of Data For the collection of the data the sources “Secondary data” will be used. We will collect the data through some previous records from KSEweb and internet. 3.6Statistical Tools Adopted: Descriptive Statistics Mean Median Mode Regression Corelation Corelation co efficient 3.7Descriptive Statistics Enlightening insights are utilized to outline the critical attributes of vast information sets. The use of descriptive statistics to consolidate a mass of numerical data into useful information. Mean Number juggling mean is the main measure of focal propensity for which the total of the deviations from the mean is zero Median Middle is the midpoint of an information set when the information is organized in climbing or diving request. A large portion of the perceptions lie over the middle and half are underneath To decide the middle, orchestrate the information from the most elevated to the least esteem, or least to most noteworthy esteem, and locate the center perception Mode The mode is the value that occurs most frequently in a data set. A data set may have more than one mode or even no mode. When a distribution has one value that appears most frequently, it is said to be unimodal. When a set of data has two or three values that occur most frequently, it is said to be bimodal or trimodal, respectively. Range The extent is a 7relatively basic measure of variability, however when utilized with different measures it gives greatly helpful data. The extent is the separation between the biggest and the littlest quality in the information set Range = maximum value- minimum value 3.8 REGRESSION: The regression model has been used in this study for the purpose of checking the relevant impact of differentindependent variables of this study on dependent variables. Y = B0+B1x1+B2x2+e 3.9Correlation: Correlation has been used in this study to find out the relation between different variable Correlation co efficient: Is used to find how strong a relationship is between data. 1 indicates a strong positive relationship. -1 indicates a strong negative relationship. A result of zero indicates no relationship at all. 3.10Skewness Skewness is a measure of symmetry, or more precisely, the lack of symmetry. A distribution, or data set, is symmetric if it looks the same to the left and right of the center point. 3.11Kurtosis Kurtosis is a measure of the extent to which a conveyance is pretty much topped than an ordinary dispersion Mesokurtotic.; A distribution is mesokurtic if it has the same kurtosis as a normal distribution. leptokurtotic; Leptokurtosis describes a distribution that is more peaked than a normal distribution. platykurtotic; Platykurtic alludes to an appropriation that is less topped, or compliment than an ordinary conveyance. 3.12 Population: Karachi Stock Exchange 3.13 Sample Size: Our Sample size base on KSE 100 index 3.14 Instrumentation: The instruments which will be used during the research by the researcher will be Internet. Secondary data. CHAPTER:4 4.1Result Interpretation 4.11Descriptive Statistics RM EXCHANGE_RATE GDP INF  Mean  -  -  -  -  Median  -  -  -  -  Maximum  -  -  -  -  Minimum -  -  -  -  Std. Dev.  -  -  -  -  Skewness -  -  - -  Kurtosis  -  -  -  -  Jarque-Bera  -  -  -  -  Probability  -  -  -  -  Sum  -  -  -  -  Sum Sq. Dev.  -  -  -  -  Observations  21  21  21  21 In descriptive statistic we took total 21 observations. Three Independent variables (inflation, exchange rate and GDP) and dependent variable is KSE 100 Index return. The mean is- and median is- and the maximum value is 1.12197 and the minimum value is -. Standard Deviation is 0.3833, skewness shows -0.28 and kurtosis is 3.2. 4.12Corelation analysis RM EXCHANGE_RATE GDP INF RM  -  - - - EXCHANGE_RATE  -  -  -  - GDP -  -  -  - INF -  -  -  - Exchange rate has significant correlation with KSE 100 index return (RM) while GDP and INF have insignificant correlation to KSE 100 index return (RM). Exchange rate effect KSE 100 Index return with 4.7% while GDP with – 1.9% and – 59.9%. 4.13 Regression analysis Table # 1.0 Dependent Variable: RM Method: Least Squares Date: 01/26/16 Time: 14:03 Sample (adjusted):- Included observations: 21 after adjustments Variable Coefficient Std. Error t-Statistic Prob. C- EXCHANGE_RATE- GDP - - INF - - R-squared- Mean dependent var- Adjusted R-squared- S.D. dependent var- S.E. of regression-     Akaike info criterion- Sum squared resid-     Schwarz criterion- Log likelihood -     Hannan-Quinn criter- F-statistic-     Durbin-Watson stat- Prob(F-statistic- T-statistics shows that inflation has significantly effect on KSE100 index however Exchange rate and GDP has insignificant effect on KSE100 index return. F-statistics shows that exchange rate, GDP and Inflation combinely have significant effect on KSE100 index. R-squared is 39% which is lesser than 60% so it shows that it is not fitted. CHAPTER:5 5.1Conclusion This chapter show the conclusion study conducted on impact of macro-economic variable on KSE 100 Index return; Evidence from Karachi stock exchange. The study concludes that there is change in the macroeconomic variable i.e. conversion scale, swelling and GDP have an effect on1KSE-100 record Return. The brief rundown of the entire paper are talk about beneath. Various variables in the economy that influence the KSE 100 list return. 1In the Pakistani economy, there are three stocks trade business sector are working i.e. Karachi stock trade, Lahore stock trade and Islamabad stock trade. Karachi stock trade is the most established and greatest stock trade in Pakistan. Karachi stock trade catches (74%) of capital business sector of Pakistan. It assume crucial part in the advancement of Pakistani economy. Three distinctive macroeconomic variables are utilized to discover the effect of these variables on KSE-100 record return. Information was gathered from (1993) to (2014) and utilized for the study. From the investigation of the information in the table 2, R2 is the coefficient of determination that is utilized to watch that the general model is great fitted or not. It demonstrates the aggregate variety in free variables. In the table, the estimation of R2 is (0. 3914 or 39.14%), which propose that the model is closer to be great fitted and clarified every single autonomous variable. model propose thatthat T-statistics shows that inflation has significantly effect on KSE100 index however Exchange rate and GDP has insignificant effect on KSE100 index return. F-statistics shows that exchange rate, GDP and Inflation combinely have significant effect on KSE100 index.R-squared is 39% which is lesser than 60% so it shows that it is not fitted.To recognize about the factual essentially utilize T-test and F-test. Use T-test for individual fundamentally of variables .Macroeconomic variables like swelling are measurably huge, while swapping scale and GDP is factually irrelevant. The general model is measurably huge, as indicated by the F-test investigation Moderate positive correlation between exchange rate and KSE100 index return and it is also factually inconsequential. Thusly, it doesn't require a lot of thought.Analysis among the independent variables suggests no such strong correlation amongst the independent variables. All the variables show direct and indirect, positive and negative relationship whose consideration is not important. Recommendations: To increase more KSE 100 index return, the economic decision makers of the country have to take bold steps. To bring sustainable economic growth and attractive inflow of KSE 100 index return into the country high authorities should consider these important factor which are political stability, stability in economic indicators, moderate inflation rate, encourage the domestic investment, reduce the tax burden on foreign investors, lower or stable inflation rates, stable law and order situation and stability in government policies. Political instability is always a negative factors for local and foreign both investors. These all factors attract investor in their decision making regarding their investments. High tax rates and high inflation is always a serious concern for investors both factors discourage investment opportunities. Exchange rates uncertainty and high fluctuation discourage investors. Government should take steps to increase Gross domestic product growth to increase exports. 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