THE LONG-RUN RELATIONSHIP BETWEEN MACROECONOMIC FACTORS AND STOCK PRICES: A COMPARATIVE STUDY BETWEEN CONVENTIONAL AND ISLAMIC INDICES
THE LONG-RUN RELATIONSHIP BETWEEN MACROECONOMIC FACTORS AND STOCK PRICES:
Keywords:
ARDL, cointegration, Islamic index, KSE-100, KMI-30, macroeconomic factors, Pakistan.Abstract
This study investigates the long-run relationship between key macroeconomic variables (inflation, interest rate, exchange rate, money supply, and industrial production) and stock prices in Pakistan, comparing the KSE-100 Index (conventional) with the KMI-30 Index (Islamic). Using monthly data from January 2009 to June 2025 (198 observations), the ARDL bounds testing approach is employed. Results reveal the existence of cointegration in both indices. In the long run, exchange rate depreciation and industrial production growth positively affect both indices, while inflation and interest rates negatively influence the conventional index more strongly than the Islamic index. Money supply (M2) shows a positive long-run impact only on the Islamic index. The Islamic index exhibits greater resilience to interest rate and inflation shocks due to its Shariah screening and profit-and-loss sharing principles. Findings support the semi-strong form of market efficiency in Pakistan and provide implications for faith-sensitive investors and policymakers.
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