Impact of SystematicRisk Factors on Stock Prices in Pakistan: Explanatory Power and Moderating Role of Political Risk

Abstract

Political uncertainty role to determine stock prices is an important construct in the contemporary dynamic world. Thestudyhas addressed two main objectives. First it has evaluatedthedirect impact of political uncertainty on stock prices.Secondly it hasexamined the moderatingeffect of political uncertainty in the relationship ofsystematic risk factors on equity securities prices in Pakistan. Sample data for the systematic risk factors including exchange rates,inflation rates, interest rates, economic growth rates and stock pricesfrom July 1998 to June 2018is analyzed.Results showedthesignificant direct relationship exists in case of political uncertaintyand systematic risk factors on stock prices in Pakistan. Political risk has significantly moderated the causal relationship for exchange rate, inflation rate, economic growth rate with stock price.Interest rate and stock price relationship is not found significant in Pakistan. Currency value, inflation and Political risk are foundto be the major factors that need to be addressed by the policy makers for the good performance of the equity markets.