Impact of Macroeconomic Factors on Banking Index in Pakistan

Abstract

The basic purpose of study is to know the impact of macroeconomic factors on banking index with in APT context. Macroeconomic climate is comprised of Money Supply, Exchange Rate, Industrial Production, Short Term Interest Rate and Oil prices. Banking index includes twenty nine listed banks on Karachi Stock Exchange from June 2000- June 2010. Diagnostic tests such as multicollinearity, Normality, Hetroskedisticity and Autocorrelation, have been performed which indicate data has no econometric problems. Regression results indicate that Exchange Rate, and Short Term Interest Rate have significant impact on Banking index. Macroeconomic variables like Money Supply, Exchange Rate, Industrial Production, and Short Term Interest Rate affects the banking index negatively where as Oil prices has a positive impact on Banking index.

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