THE INFLUENCES OF MACRO-ECONOMIC FACTORS ON CAPITAL MARKET PERFARMANCE IN PAKISTAN

The key determination of the present research is to examine the impact of selected major variables on stock return of the Pakistani emerging capital market Karachi Stock Exchange. The researches display that capital market is inclined by transform in major economic variables. This study observes impact of three major economic variables i.e. foreign direct investment, foreign exchange rate and inflation at Karachi stock exchange. The monthly data of ten years practice in this study. To reach the objectives, study uses the Ordinary Least Square (OLS) to estimate the correlation and regression model. The Durbin-Watson statistics 1.90 value indication that there are no serial correlations issues in study. And results show that significant negative impact of inflation and Foreign exchange rate &foreign direct investment negative insignificant impact on KSE dependent variable. And overall model good fit by probability of F-statistics which less than 5%.


INTRODUCTION
In capital markets, the stock price determent by micro factors in short & long run e.g. financial & liquidity position of firm, profit or loss declare and dividend announcement etc. But also, influence on stock returns by some national factors i.e. stock market regulation & tax impose by national government. And some major economic factors furthermore influence i.e. foreign direct investment, inflation, industrial production, interest rate, savings, foreign exchange reserves, gross domestic product, exchange rate, money supply, imports & exports of goods & services and oil & gold prices fluctuation in international markets, used by various researchers. There are one of the most important role of capital market is to act upon as moderator along with investor and borrowers opportunities for investment. In short-term and long run the securities are traded of listed companies in capital market and as well affected by micro and major economic factors. These factor representations study the sensitivity of an equity &debenture return as a role of one or more factors. The capital market and a mixture of variables are directly related with each one other.

OBJECTIVES OF THE STUDY
The specific purpose of this research is following objectives: i) To look at the macro-economic factors. ii) To find are there any correlation exist between stock return and major-economic factors.
iii) To study the significant impact of macro-economic factors on stock return.

REVIEW OF EMPIRICAL STUDIES
A lot of consequences obtained in the rest of world by researcher used different statistical techniques to affiliation between macro-economic factor and stock return in developed & emerging capital markets and come across impact of these variables on stock market enlargement. The research paper's contribute from poles apart from emerging countries are as follows.  exchange rate and change in stock prices also an insignificant factor explaining part of the movement in the macroeconomic variables except for market interest rates. In regression analysis all the macroeconomic variables are jointly significant in explaining the variations in stock prices. The causality between macroeconomic variables and stock prices runs entirely in one direction from inflation rate (IR) and exchange rate (ER) to stock prices (SP) and from stock prices (SP) to market interest rates (IR) in Kenya.
NAIK, P, K,.& PADHI, P,. (2012) have argued that stock return should be affected by five Independent Variables namely industrial production index (IP), wholesale price index (inflation), money supply (M3), treasury bills rates (t-bills) and exchange rates (ER) on Bombay Stock Exchange (BSE). Study collected monthly data a period from April 1994 to June 2011. Result found by used Johansen's co-integration and vector error correction model that the Indian stock market index formed significant long-run relation with three out of five macroeconomic variables tested. In the long-run, the stock prices are positively related to money supply (M3) and real economic activity represented by industrial production index (IP). Inflation has found to be negatively related to stock price index, the short term interest rate (IR), as proxies by three month government treasury bills (T-bills) and the real effective exchange rate (ER) are not turning out to be the significant determinant of stock prices. In India, the interest rate (IR) does Granger cause to stock prices in the long run but the co-integration results do not show its significant impact on stock prices although the coefficient is negative in India.
Implementation of the econometric Model:

RESEARCH METHODOLOGY
The study has been conducted the secondary data to find the relationship between macroeconomic variables and stock return. In this study,econometric model Ordinary Least Square (OLS) to estimate the particular circumstances and in relation to which other variable quantities may be expressed.Data analysis performed on MS Excel and E-views statistical software. The regression technique makes use of by OLS to identify the significance &direction of relations between Karachi Stock Exchange and major economic factors.

Stock return:
Karachi stock exchange 100 index return chosen for the study based on accessibility and also reliability of data. Stock prices are obtained from Karachi stock Exchange official site and experiential on monthly basis stock prices in the period from November 2005 to October 2015.
The stock return is calculated as the monthly change in the stock price by the following formula: R (t) = (P1/P0) -1 Where R (t) the stock price in month t and P1 is current month stock price and P0 previous month stock price.

Foreign direct investment:
Foreign direct investment is eminent from assortment foreign investment, a passive investment in the securities of a different country such as public stocks and bonds. Foreign direct investment data collected from State Bank of Pakistan official site on monthly base start a period from November 2005 to October 2015. FDI calculated as the monthly value by the following formula: FDI (t) = LN (t) Where FDI (t) the value at month t and LN (t) is natural logarithm in MS excel in month (t) of FDI value.

Foreign exchange rate:
In term of finance, a foreign exchange rate, between two currencies is the rate at which one currency will be exchanged for another. Foreign exchange data obtained from State Bank of Pakistan official site and collected rate monthly base start a period from November 2005 to October 2015. Foreign exchange rate calculated as the monthly rate by the following formula: FR (t) = 1 / USD (t) Where FR (t) foreign exchange rate month t, and 1 divided by USD are equal to PKR value at month (t).

Gold prices:
All of the valuable metals, gold is the most accepted as an investment. Investors normally buy gold as a way of diversifying risk, particularly through the use of futures contracts and derivatives. The gold market is subject to conjecture & unpredictability as are other markets. Gold prices data collected from World Bank and monthly base start a period from November 2005 to October 2015. Gold price in Pakistan Rupee, 1 Troy per ounce (unit of mass (weight)) is equal to 31.1034 Grams (unit of mass in metric system) weight. Gold prices calculated as the monthly Value by the following formula: GP (t) = LN (t)