Macroeconomic Determinants of Stock Market Returns in Pakistan: Evidence from ARCH, GARCH, and TGARCH Models

Authors

https://doi.org/10.48313/iee.vi.75

Abstract

This study examines the relationship between macroeconomic fundamentals and stock market returns in Pakistan over the period 1999–2023, with a particular focus on volatility dynamics and asymmetric market behavior. Using ARCH, GARCH, and TGARCH models, the study analyzes the impact of GDP growth, inflation, broad money supply, and exchange rate fluctuations on stock market performance and volatility. The empirical results from the GARCH model reveal that broad money supply, GDP growth, inflation, and exchange rate movements significantly influence stock market returns, with strong evidence of persistence in return dynamics. The variance equation confirms pronounced volatility persistence, indicating that market fluctuations are largely driven by past volatility rather than short-term shocks. The TGARCH results further show that macroeconomic variables remain significant determinants of stock returns; however, volatility dynamics exhibit limited evidence of asymmetry and leverage effects. Overall, the findings suggest that Pakistan’s stock market is primarily influenced by macroeconomic stability and monetary conditions, while volatility is characterized more by persistence than structural shocks. The study highlights the importance of macroeconomic management in enhancing financial stability, reducing uncertainty, and strengthening investor confidence in emerging financial markets like Pakistan.

Keywords:

Stock market returns, Macroeconomic factors, GDP growth, Inflation, Exchange rate, GARCH models, Pakistan

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Published

2026-06-28

Issue

Vol. 2 No. 2 (2026): Innovations in Environmental Economics

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How to Cite

Macroeconomic Determinants of Stock Market Returns in Pakistan: Evidence from ARCH, GARCH, and TGARCH Models. (2026). Innovations in Environmental Economics , 2(2), 196–206. https://doi.org/10.48313/iee.vi.75

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