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Paper Details

Impact of monetary policy on stock returns: Evidence from manufacturing sectors of Pakistan

Farman Ali, Babar Adeeb, Sufian Saeed

Journal Title:Basic Research Journal of Business Management and Accounts

This study investigates the dynamic impact of monetary policy on stock return in the manufacturing sector of Pakistan over the period of 2001-2010. Monetary instruments that have been used in this study include cash reserve ratio and discount rate whereas company-specific variables have been represented by sales growth, leverage and size. Results reveal that monetary policy and company specific factors have a significant impact on stock returns, there by sustaining the notion of monetary policy transmission. Cash reserve ratio and the discount rate is found to be negatively impact on stock returns while inflation have positive impact and money supply has positive has negative impact on stock returns. Company-specific variables, size of the firms has a significant negative impact on stock returns while sales growth and leverage are insignificant. The results of this study suggest some important implications for investors. Whenever the SBP increases the cash reserve ratio (CRR) and discount rate, investors should be more vigilant in considering these factors while making an investment decision because an increase in the cash reserve ratio generates less return on their investment portfolio. Keywords: Monetary Policy, Company-specific variables, multiple regressions