The Moderating Impact of Political Stability on the Relationship between Macro-economic Variables and Stocks Performance in the Era of Digitalisation: Evidence from the Pakistan Stock Exchange (PSX)

Abstract

The stock market is considered the backbone of the economic system of any country. However, the stock market’s performance is influenced by many factors, especially the macroeconomic variables. Specifically, the political stability in a country plays a vital role in the functioning of the overall economy. Thus, the current research aims to analyse the moderating impact of political stability on the relationship between macroeconomic variables (interest rate, inflation, and economic growth) and the performance of the Pakistan Stock Exchange (PSX) proxied by the KSE-100 Index in the era of digitalisation. The monthly data of selected variables was collected from 2009 to 2016, and the multiple Ordinary Least Squares (OLS) technique was applied for analysis purposes. The study revealed that political stability positively influences the relationship between selected macroeconomic variables and stock prices. The results of this study provide helpful insight to shareholders, managers, and policymakers in Pakistan.