DETERMINANTS OF SHARE PRICES AT KARACHI STOCK EXCHANGE

Year 2012, Volume: 4 Issue: 1, 111 - 120, 01.06.2012

Muhammad Nauman Khan - Amanullah

Abstract

Knowing about stimulus of stock indices is a key for the future projection of
stocks performance and in turn provide base for making and suggesting
appropriate economic policies. The main objective of the study is to find different
determinants of share prices and the relationship of these determinants with the
share prices of Karachi Stock Exchange (KSE) 100 index of Pakistan. After going
through literature review 5 quantitative determinants, namely Book to Market
(B/M) ratio, Price Earning (P/E) ratio, Dividend, Gross Domestic Product (GDP)
and Interest Rate were selected to find out the direction and strength of
relationship. A sample of 34 companies has been randomly selected from 34
sectors of KSE. Ten years’ (2000-2009) data has been collected for the sample
companies. The tools used for analysis are Linear Multiple Regression and
Correlation Model.
It has been concluded that all the factors selected have positive and significant
relationship with share prices except Interest rate and B/M ratio. The rise in GDP,
dividend and P/E ratio leads to rise in share prices. B/M ratio and interest rate are
negatively related to share prices. The hypothesis developed for GDP rate,
Dividend per share, Interest rate, B/M ratio and P/E ratio are thus accepted.

Keywords

Determinants of share prices, Gross domestic product (GDP), Interest rate, Dividend per share, Book to market (B/M) ratio, Price earning (P/E) ratio, Karachi Stock Exchange

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