Introduction to Securities Investment (Understanding Investment Decision Process) Individual's Objective: Maximize utility (=degree of satisfaction)…
Table of Contents with List of Tables and/or Illustrations Serial number Description Page numbers Title 2 Abstract 3 Table of contents 4 Introduction 5 Research Question 6 Research Objective 7 Literature Review Significance 9 Research Methodology 10 Data Collection Sources 11 Data Collection Tools 12 Hypothesis 13 Research Model 14 Theoretical Framework 15 Type of research 8 16 Sampling technique 17 Data processing, analysis and statistical tools 18 Reference Theoretical framework 7 Introduction: GAP is the key indicator of the economic growth of a developing country.
This study will find out the linkage between the stock market earnings and GAP growth of Pakistan. Pakistan has struggled in the field of economic progress since inauguration. However in the recent past decade from 1999 to 2008 it was observed that Pakistan has seen the apex of economic progress. During this period the stock exchange out performed, there was an easy access to cash around the country due to low interest dates. Pakistan attracted record foreign direct investments (FED) and there was no dearth of money involving each segment of society in the business. The major highest ever closing at 15,676. 4 points on 18 April, 2008 (SSE, 2008). The important point of concern here is that SSE was at peak when GAP growth rate is at its peak 8. 6 and it linked to overall economic progress, thereafter as the SSE index started declining, the economy as a whole and GAP also declined. Proof to the fact is sky high (double figured) inflation in the country. This trend continues till now. Therefore, the duty will help to find the linkages between stock market earnings and GAP, and recommend measures to brighten the stock market earnings to improve the overall economic health of the nation.
Therefore it will add to the academic awareness for investment opportunities in Pakistan. Research Questions / Statement of the Problem 1 Are the changing stock prices positively related to the wealth in economy? 2 Do the stock market earnings and economic growth have some relationship with each other? 3 Do the stock market earnings affect the GAP growth of a country? Is this impact related? The main objective of this research is to find out the relationship between stock exchange earnings and GAP growth of a nation, resulting in improving economic situation and living standards of an average citizen.
To find out whether the economic progress of a country is related to the stock market, or otherwise On the basis of results, give the recommendations for the improvements in the economic situation. Stock exchanges play a vital role in the development of a country by speeding up its economic activities. Tale and Jovanovich (1993) study the stock market and economic Roth of 40 different countries for the period of 1980-1988 and found a considerable correlation between the average economic growth and market capitalization.
In another study Eleven and Servos (1998) also analyze the data of 47 countries for 1976-1993. The results show that stock market liquidity directly effect to capital accumulation and productivity while the stock market size does not seem to correlated with economic growth. Demure-Kant and Macroscopic (1998) studies of transmission of securities (secondary market) and develops a relationship between economic growth and stock market. Demure-Kant and Macroscopic (1996) take the sample of 30 counties for the period of 1980-1991 and conclude the following results from their analysis.
Stock markets developments in growing countries do not cause a decrease in banking system. Banks and stock markets do not emerge as adversary institutions instead they are complimentary to each other for reinforcing the economic and financial system. Demure-Kant and Eleven(1996) working on the same idea carried the research on the data of 44 countries for the years 1986-1993, and conclude that countries with the well developed stock markets also tends to have ell developed financial institutions.
Barlow (1992) studies the relationship between stock market prices and expected earnings by using the expected earnings model. Bartlett (2000) study shows that increase in stock prices have two major effects on the economy. First it increases the wealth, increase in wealth also increases consumer’s spending and finally the wealth of nation. Secondly rising prices also increase the investment spending. Loudly (2001) also explains that the current price of stocks is equal to expected value of the sum of future period prices and dividend discounted t the present rate.
Irving (2004) based on hid study describes that relationship between stock market and overall socio-economic developments is weak, have no reality or even harmful. Slue and Moon (2009) studies the impact of stock market earnings on the per capita income and found a positive relationship between the stock market earnings and per capita income. So a number of studies exist in the literature on the stock markets role on the economic development with the mixed relationship between the two. Some studies show that there is positive relationship hill the others say that there is no relationship or even negative relationship.
The problem statement: Does Stock Exchange earnings have an impact on the GAP growth of a country or not? If the research statement proven correct can be beneficial to carve out following recommendations:- As positive relation between stock exchange and GAP growth is observed, there is, therefore a need to educate and exchange. Government should take measures to make the stock market shock absorbing mechanism through regulatory authorities. Sudden injection and drain of investment must be checked at all levels.
Data Collection Tools/elements As described above, secondary data collection tools like internet etc will be used. Nevertheless, questionnaire may also be used if appropriate. Likewise, Statistical Package for the Social Science, commonly known as SPAS has been used for analyzing the data and finding out relationship between independent as well as dependent variables. H – O: fluctuation in stock exchange earnings has direct impact on the volume of Gross Domestic Product of a Country. H – 1: fluctuation in stock exchange earnings has no relationship with pattern with Gross Domestic Product of a Country. Research Model:
The research model is being adopted, from Demurring-Kant, Assail and Levine (1996) theory on the relationship between stock market earnings and economic growth. On the same basis we will measure the stock market impact on the GAP growth. GAP will be dependent variable; MAC represents market capitalization, which signifies the size of the market. Price to Earning Ratio (PIE) measures the appropriateness of the pricing of securities listed on the exchange and Dividend Yield measures the Yield on investment in such securities. Number of listed Securities measures number of securities available for transaction in the market.
Theoretical Framework: To investigate the impact of stock market earnings on GAP growth same model will be used as by Demure-Kant and Eleven, I will indeed ascertain the linkage between (GAP) of Pakistan as the proxy for GAP of a growing country which is our dependent variable and stock market capitalization (MAC), price earnings ratio (PIE), Dividend Yield (DAY) and number of list securities (NILS) – stock market performance variables, as our independent variables. The cause and effect relationship between dependent and independent variables are appended below:- Independent variable Dependent variable
Market capitalization Price Earning Ratio Dividend Yield Gross Domestic product (GAP) Number of Listed Securities Type of Research: Since the research findings will add to the existing knowledge and explain the phenomenon of the linkages between stock exchange earnings and Gross Domestic Product (GAP), therefore from academic perspective, it’s a fundamental research. The findings can be helpful for investors and decision makers to relate this major economic progress indicator as a bench mark for taking investment decisions. Sampling Techniques: It’s a mix of Stratified Random Sampling and whole population.