Impact Assessment of Macroeconomic Variables on the KSE-100 Index: An Empirical Study of Pakistan's Stock Exchange

Abstract

This study analyzes how macroeconomic elements affect the KSE-100 Index in Pakistan through a short and long-term evaluation using Autoregressive Distributed Lag (ARDL) methodology. Monthly data collected from the State Bank of Pakistan and World Bank resources from July 2009 to June 2024 demonstrates how interest rate, exchange rate, inflation, FDI, GDP and unemployment rate affect KSE-100 Index performance. Research results show that both elevated interest rates and inflationary pressures cause KSE-100 Index declines due to their adverse effect on stock market performance. The positive correlation between FDI and GDP shows that market investment together with economic expansion increases the stock market. The research shows investors strictly need stable macroeconomic environments for maintaining market confidence while directing investments. The analysis offers important findings to investors along with policymakers who need to implement stable economic policies to boost financial market expansion. Frictionless stakeholder decision-making supports economic growth and further strengthens Pakistan's stock market through complete knowledge of these relationships.