Stock market consequences of macro economic fundamentals

Abstract

It is concluded in the study that the Valuation Ratio will be independent from the Equities if equity-elasticity is equal to one. However, Market Capitalization depends on the investment in equities and the market liquidity. The model has been tested in the context of Pakistan and the Monetary and Fiscal policies have been found as the significant determinants of the Market Capitalization.Co-integration; Granger’s Causality; Liquidity-Elasticity; Equity-Elasticity; Market Capitalization; Simulation