IMPACT OF SELECTED MACROECONOMIC FACTORS ON INVESTOR’S INVESTMENT DECISIONS AT KSE 100 INDEX

Abstract

This research study empirically explores the long run and short run effects and trends of inflation rate, interest rate, exchange rate and FDI with investor’s decisions at KSE 100 index. To evaluate short and long run relationship, monthly data of fifteen years from the period January 2001 to December 2015 was used to obtain the results of the study. The data was transformed into stationary to avoid the spurious results by employing ADF Test. Co integration test was used followed by VECM, BG LM test, Heteroskedasticity, Granger causality test and IRF. The result of the study reveals that all the variables had positive and significant impact on investor’s investment decisions at KSE 100 index except inflation rate. Results reveals that there was also one cointegrating vector among these variables. The interest rate and FDI had also short run impact on investor’s decisions at KSE 100 index, it means change in monetary policy and FDI effects on the investor’s decisions. Furthermore, the results show that there is a significant strong relationship among the variables in long run. Investors at KSE 100 index and exchange rate had Granger cause on each other.