MACROECONOMIC DYNAMICS: UNRAVELING VOLATILITY PATTERNS IN THE PAKISTAN STOCK EXCHANGE USING E-GARCH

Abstract

This study explores the dynamics of Pakistan's equity market, specifically the PSX 100 index between January 2010 and December 2018. Using the E-GARCH model, it investigates how global and domestic macroeconomic variables affect equity returns volatility. Descriptive statistics highlight key variable characteristics, such as negative skewness and leptokurtosis in PSX returns. Stationary tests confirm the lack of trends, supporting the use of time series modeling. The EGARCH model reveals volatility asymmetries, suggesting that positive shocks result in less volatility than negative shocks. Granger causality tests uncover one-way relationships, indicating the influence of oil, gold, and exchange rates on PSX return volatility. These findings have implications for risk management and decision-making. Future research may explore external factors' impact and assess model robustness across different time frames.