Secondary data analysis of Pakistan key macroeconomic variables on the KSE_100_Index. The analysis provide a ready insight to descriptive statistics, correlation, linear & multi-stage regression, qualitative & quantitative forecast patterns and much more. For the study,IBM SPSS and Microsoft EXCEL solution is used. Secondary data is sourced from trending economics for 18-years (wef January 2000 to June 2018)

1. 1 of 08
EFFECTS OF MACROECONOMIC VARIABLES ON
KSE-100-INDEX
Sayyed Zakir Ali Rizwe
20151-19131
Submitted To:
Muhammad Yasir
MBA Coursework – Business Analytics for Decision Making
IoBM - College of Business Management

2. 2 of 08
Macro-Economic Indicators & Stock Index
 Pakistan Stock Exchange: KSE-100-Index
 Top 100 Companies with Highest Market
Capitalization
 Index represent 88% market value
 From-The-Year: 1991 to 2018
 Consumer Price Index
 weighted average of prices of a basket of
consumer goods and services
 Represent the ‘cost of living’
 Interest Rate
 Cost of debt for the borrower and the
rate of return for the lender
 Discount rate or ‘risk free rate’
 Exchange Rate
 Price of a nation's currency in terms of
another currency
 Base currency and a counter currency
[PKR to US$]

3. 3 of 08
Conceptual Framework & Secondary Data
 KSE-100-Index
 http://www.psx.com.pk
 Month-wise index
standing
 Dependent Variable
 Consumer Price Index
 http://www.pbs.org.pk
 average CPI taken as the
monthly value
 Independent Variable
 Interest Rate
 http://www.sbp.org.pk
 average interest rate as
the month-value
 Independent Variable
 Exchange Rate
 http://www.sbp.org.pk
 Average exchange rate
is taken as the monthly
value
 Independent Variable
MonthlyData
January2000toJune2018
Secondary data, tests & findings, recorded in following EXCEL sheets & IBM SPSS files
- Main_Project_File [EXCEL] {descriptive statistics| sparklines| pivot-tables| Count-
If| graphs| changes in monthly positions| data preparation for IBM SPSS}
- Project_Test_File [EXCEL] {Correlation, Covariance, Pivot-table | Regression,
standard error, Equation-results, Graphs}
- Project_Test_File_FC_What_If [EXCEL] {qualitative forecast, time-series forecast
using moving average models| what-if analysis and goal seeking}
- IBM SPSS Files [Data file & output-file for Cluster analysis| Histogram| Linear
regression | Scatter plot]

4. 4 of 08
Descriptive Statistics
Mean Geo Mean Mode Median Std. Deviation Sample Variance CoV Percentile Min Max Min Max
Interest Rate 9.27 8.95 7.00 9.00 2.45 6.01 26% 13.50 (1.44) 2.13 5.75 14.50
CPI 128.96 116.22 116.46 119.05 56.99 3248.32 44% 216.57 (1.21) 1.60 60.12 226.68
Exchange Rate 78.95 76.50 51.9 80.00 19.81 392.28 25% 105.48 (1.37) 1.84 51.9 121.47
KSE 100 Index 15666.56 9923.70 NA 11179.97 13631.98 185830973 87% 43,927.61 (1.07) 2.56 1133.44 50591.57
Z-Score Observations

5. 5 of 08
Histogram – Dependent & Independent Variables
• Multi-modal distribution
• Frequent changes in
Monetary policy
• Interest rate of
5.8,8.5,9.0 & 9.5 applied
for 20 or more months
• Unit-frequency
• Between a skewed-right
and bi-modal
distribution
• Reflect ‘intermittent’ CPI
increase
• Close to unit-frequency
• Skewed-right [military
regime, US$ dollar parity
for 5-6 years], followed
by intermittent increase
[democracy],
• Multi-modal distribution
• Unit-frequency
• ‘Skewed-right’ distribution

6. 6 of 08
Scatter Position – Independent & Dependent Variables
KSE-100-Index Vs. IR KSE-100-Index Vs. ER KSE-100-Index Vs. CPI
IR Vs. ER IR Vs. CPI ER Vs. CPI

7. 7 of 08
Correlation Coefficient
Interest-Rate Consumer Price Index Exchange Rate
Interest-Rate 1
Consumer Price Index -0.26 1
Exchange Rate -0.20 0.98 1
Interest Rate & CPI (36.37)
Interest Rate & Exchange Rate (9.53)
CPI & Exchange Rate 1,111.26
Interest Rate & CPI (0.26)
Interest Rate & Exchange Rate (0.20)
CPI & Exchange Rate 0.98
Divided by Product of SD
Covariance
- Interest rate has a
negative correlation with
CPI, exchange-rate and
KSE-100-Index
- CPI has a negative
correlation with interest
rate and a positive
correlation with exchange
rate and KSE-100-index
- Exchange rate has a
negative correlation with
interest rate and a
positive correlation with
CPI and KSE-100-index
- KSE-100-Index has a
negative correlation with
interest rate and a
positive correlation with
CPI and ER

8. 8 of 08
Regression Analysis [Model: 01]
KSE-100-Index = 43462.127 – 2997.263(Interest rate)
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10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
2000
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Linear Regression
Interest Rate vs. KSE 100 Index
Interest-Rate Actual - KSE 100 Index Estimated - KSE 100 Index
KSE-100-Index Vs. Interest Rate
High standard error rate (distance of estimated value to
actual value) and a low adjusted r-square translate in to
only 4.5% of the forecasted/estimated dependent variable
values within a mean distance of 1000 (+/-)points

9. 9 of 08
Regression Analysis [Model: 02]
KSE-100-Index = -12221.810 + 216.264(CPI)
KSE-100-Index Vs. Consumer Price Index
High standard error rate (distance of estimated value to
actual value) even with a better adjusted r-square
(compared to interest rate) translate in to only 21.63% of
the forecasted/estimated dependent variable values falling
within a mean distance of 1000 (+/-)points
0
10000
20000
30000
40000
50000
60000
2000
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2018
2018
Linear Regression
CPI vs. KSE 100 Index
CPI Actual - KSE 100 Index Estimated KSE 100 Index

10. 10 of 08
Linear Regression: Step-Wise
KSE-100-Index = 7193.184 + 195.980 (CPI) – 1811.505 (IR)
KSE-100-Index Vs. CPI and Interest Rate
 With a 95% confidence interval (or α =
0.05), critical value of 1.97 is
determined by referring degree-of-
freedom from a two-tail test table
 Model-1: value of t-statistic [-12.590 &
31.397] is outside critical value ± 1.97
 Model-2: value of t-statistic [5.239,
40.518 & -16.112] is outside critical
value of ± 1.97
Null hypothesis is rejected; same is also
stated by the significance value of 0.00
that is less than 0.05
(10,000.00)
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10,000.00
20,000.00
30,000.00
40,000.00
50,000.00
60,000.00
2000
2000
2000
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2018
2018
Linear Regression [Model-2]
CPI & Interest Rate
Interest-Rate CPI Actual - KSE 100 Index ABS [Act-FC]

11. 11 of 08
Qualitative Forecast – Interest Rate & Exchange Rate
 Qualitative Methods of Forecasts
 Informed opinion and judgment
 Delphi method, market research
Qualitative Method - Patterns
Interest rates are driven on
central bank monetary policy.
Reasonable to state that interest
rate cyclically increases and
decreases, roughly by 10% to
15% in 3-5 years cycle
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
January 51.9 59.25 59.90 58.17 57.20 59.15 59.85 60.40 62.45 78.90 83.53 85.40 89.60 97.70 105.42 100.90 104.93 104.59 110.52
February 51.9 60.31 59.95 58.11 57.20 59.15 59.97 60.85 62.40 78.90 83.53 85.50 90.80 96.73 104.90 100.90 104.59 104.61 110.53
March 51.9 60.75 59.95 57.81 57.08 59.36 60.12 60.88 62.55 80.35 83.75 85.00 90.60 98.30 96.76 101.80 104.73 104.66 115.42
April 51.9 61.25 59.95 57.70 57.43 59.28 60.12 60.68 64.50 80.00 83.90 85.39 89.46 98.40 98.25 101.75 104.82 104.73 115.54
May 52.06 63.37 60.05 57.64 57.65 59.28 59.70 60.71 66.20 80.85 83.97 84.70 92.17 98.40 98.70 101.90 104.83 104.66 115.55
June 52.23 63.46 60.05 57.85 58.00 59.70 60.10 60.50 68.10 81.26 85.45 86.00 94.50 97.55 98.50 101.75 104.75 104.65 121.47
July 53.38 63.95 60.05 57.75 58.30 59.64 60.23 59.90 71.15 82.85 85.20 86.65 93.39 101.60 98.60 101.75 104.84 105.30
August 54.7 63.95 59.35 57.71 58.72 59.64 60.23 60.66 75.40 82.80 84.18 87.10 93.50 104.30 99.76 104.13 104.68 105.05
September 58.28 64.00 58.95 57.90 59.10 59.70 60.54 60.63 77.90 82.95 86.15 87.50 93.23 104.31 101.29 104.48 104.46 105.25
October 57.35 61.30 58.87 57.38 61.08 59.72 60.50 60.64 81.20 83.55 85.85 85.56 94.49 105.87 101.83 105.48 104.77 105.10
November 57.8 60.75 58.39 57.24 59.65 59.72 60.85 61.10 78.30 83.40 85.70 86.73 96.50 108.48 100.46 105.48 104.80 105.23
December 57.8 59.90 58.35 57.30 57.54 59.74 60.77 61.75 78.75 84.30 85.65 89.70 95.71 105.60 100.45 104.74 104.30 110.40
Annual Net 5.90 0.65 (1.55) (0.87) 0.34 0.59 0.93 1.35 16.30 5.40 2.12 4.30 6.11 7.90 (4.97) 3.83 (0.63) 5.81 10.95
Exchange Rate are driven on
accumulated reserves; maintained
better in military rule with better
overall governance & lower import
bill vs. democracy where the
position is turned the other way
around
No specific pattern until radicle
shift from foreign currency
reserves to market economy

12. 12 of 08
Qualitative Forecast – CPI & KSE 100 Index
Consumer price index is heavily
influenced by petroleum prices
driven on OPEC demand &
supply and government imposed
fix levies
Upward trajectory
KSE-100-Index has more dips in the
first 6-months (January to June),
compared to later 6-months where
it maintains an upward trajectory
Therefore, the best time to invest
in stocks is in first 6-months, in the
month of February, May and June
and in August and to sell in
January, April and July

13. 13 of 08
Quantitative Forecast – Naïve & Moving Average Model
 Moving Average forecast
provide more accurate
forecast (MAPE & MAE) as
compared to the Naïve
model
 In both moving average
models, the forecast
accuracy drops on
increasing number of
months for moving average
determination
 Model-2 (average of 3/5/7
months is marked as
forecast of the 'middle
month') provides more
accurate forecast compared
to model-1 (average of
3/5/7 months is marked as
Forecast for 'the month')
FC Error (%age) Mean FC Error
Interest Rate 1.44% 0.143
Exchange Rate 0.89% 0.722
Consumer Price Index 0.74% 0.974
KSE-100-Index 5.63% 727.453
Most Recent Month
FC Error (%age) Mean FC Error FC Error (%age) Mean FC Error FC Error (%age) Mean FC Error
Interest Rate 1.42% 0.140 2.73% 0.265 4.05% 0.388
Exchange Rate 0.72% 0.583 1.20% 0.970 1.66% 1.338
Consumer Price Index 0.66% 0.856 1.23% 1.592 1.81% 2.338
KSE-100-Index 4.44% 567.382 6.76% 906.647 8.70% 1202.175
Moving Average [3M] Moving Average [5M] Moving Average [7M]
Take Average of 3/5/7 Months AND Mark it as Forecast for 'the Month'
FC Error (%age) Mean FC Error FC Error (%age) Mean FC Error FC Error (%age) Mean FC Error
Interest Rate 0.78% 0.078 1.17% 0.116 1.61% 0.159
Exchange Rate 0.42% 0.354 0.57% 0.471 0.68% 0.560
Consumer Price Index 0.24% 0.336 0.36% 0.497 0.43% 0.600
KSE-100-Index 2.53% 332.668 3.63% 452.316 4.34% 547.915
Moving Average [3M] Moving Average [5M] Moving Average [7M]
Take Average of 3/5/7 Months AND Mark it as Forecast of the 'Middle Month'

14. 14 of 08
What – If Analysis
Linear Regression (step-wise)
equation is used to deliver a
mathematical model to determine
macro economic variables and
KSE-100 Index
(KSE-100-Index) = 7193.184 + 195.980 (CPI Index) – 1811.505 (Interest Rate)
Goal Seek - Scenarios Index CPI IR
Find IR [1] 50,000 150 (7.40)
Find CPI [2] 25,000 91.646 0.085
Find IR [3] 50,000 125 (10.11)
At what interest rate, KSE-100-Index can reach 50,000 points with a 150 CPI
At what CPI, KSE-100-Index reach 25,000 points with an IR of 0.085
To reach 50,000 Index with a lower CPI of 125, the required IR is:
77,655.41 0.05 0.055 0.06 0.065 0.07 0.075 0.08 0.085 0.09 0.095 0.1 0.105 0.11 0.115 0.12
60 18861.409 18852.351 18843.294 18834.236 18825.179 18816.121 18807.064 18798.006 18788.94855 18779.89103 18770.8335 18761.77598 18752.71845 18743.66093 18734.6034
70 20821.209 20812.151 20803.094 20794.036 20784.979 20775.921 20766.864 20757.806 20748.74855 20739.69103 20730.6335 20721.57598 20712.51845 20703.46093 20694.4034
80 22781.009 22771.951 22762.894 22753.836 22744.779 22735.721 22726.664 22717.606 22708.54855 22699.49103 22690.4335 22681.37598 22672.31845 22663.26093 22654.2034
90 24740.809 24731.751 24722.694 24713.636 24704.579 24695.521 24686.464 24677.406 24668.34855 24659.29103 24650.2335 24641.17598 24632.11845 24623.06093 24614.0034
100 26700.609 26691.551 26682.494 26673.436 26664.379 26655.321 26646.264 26637.206 26628.14855 26619.09103 26610.0335 26600.97598 26591.91845 26582.86093 26573.8034
110 28660.409 28651.351 28642.294 28633.236 28624.179 28615.121 28606.064 28597.006 28587.94855 28578.89103 28569.8335 28560.77598 28551.71845 28542.66093 28533.6034
120 30620.209 30611.151 30602.094 30593.036 30583.979 30574.921 30565.864 30556.806 30547.74855 30538.69103 30529.6335 30520.57598 30511.51845 30502.46093 30493.4034
130 32580.009 32570.951 32561.894 32552.836 32543.779 32534.721 32525.664 32516.606 32507.54855 32498.49103 32489.4335 32480.37598 32471.31845 32462.26093 32453.2034
140 34539.809 34530.751 34521.694 34512.636 34503.579 34494.521 34485.464 34476.406 34467.34855 34458.29103 34449.2335 34440.17598 34431.11845 34422.06093 34413.0034
150 36499.609 36490.551 36481.494 36472.436 36463.379 36454.321 36445.264 36436.206 36427.14855 36418.09103 36409.0335 36399.97598 36390.91845 36381.86093 36372.8034
160 38459.409 38450.351 38441.294 38432.236 38423.179 38414.121 38405.064 38396.006 38386.94855 38377.89103 38368.8335 38359.77598 38350.71845 38341.66093 38332.6034
170 40419.209 40410.151 40401.094 40392.036 40382.979 40373.921 40364.864 40355.806 40346.74855 40337.69103 40328.6335 40319.57598 40310.51845 40301.46093 40292.4034
180 42379.009 42369.951 42360.894 42351.836 42342.779 42333.721 42324.664 42315.606 42306.54855 42297.49103 42288.4335 42279.37598 42270.31845 42261.26093 42252.2034
190 44338.809 44329.751 44320.694 44311.636 44302.579 44293.521 44284.464 44275.406 44266.34855 44257.29103 44248.2335 44239.17598 44230.11845 44221.06093 44212.0034
200 46298.609 46289.551 46280.494 46271.436 46262.379 46253.321 46244.264 46235.206 46226.14855 46217.09103 46208.0335 46198.97598 46189.91845 46180.86093 46171.8034
210 48258.409 48249.351 48240.294 48231.236 48222.179 48213.121 48204.064 48195.006 48185.94855 48176.89103 48167.8335 48158.77598 48149.71845 48140.66093 48131.6034
220 50218.209 50209.151 50200.094 50191.036 50181.979 50172.921 50163.864 50154.806 50145.74855 50136.69103 50127.6335 50118.57598 50109.51845 50100.46093 50091.4034
230 52178.009 52168.951 52159.894 52150.836 52141.779 52132.721 52123.664 52114.606 52105.54855 52096.49103 52087.4335 52078.37598 52069.31845 52060.26093 52051.2034
240 54137.809 54128.751 54119.694 54110.636 54101.579 54092.521 54083.464 54074.406 54065.34855 54056.29103 54047.2335 54038.17598 54029.11845 54020.06093 54011.0034
250 56097.609 56088.551 56079.494 56070.436 56061.379 56052.321 56043.264 56034.206 56025.14855 56016.09103 56007.0335 55997.97598 55988.91845 55979.86093 55970.8034
260 58057.409 58048.351 58039.294 58030.236 58021.179 58012.121 58003.064 57994.006 57984.94855 57975.89103 57966.8335 57957.77598 57948.71845 57939.66093 57930.6034
270 60017.209 60008.151 59999.094 59990.036 59980.979 59971.921 59962.864 59953.806 59944.74855 59935.69103 59926.6335 59917.57598 59908.51845 59899.46093 59890.4034
280 61977.009 61967.951 61958.894 61949.836 61940.779 61931.721 61922.664 61913.606 61904.54855 61895.49103 61886.4335 61877.37598 61868.31845 61859.26093 61850.2034
290 63936.809 63927.751 63918.694 63909.636 63900.579 63891.521 63882.464 63873.406 63864.34855 63855.29103 63846.2335 63837.17598 63828.11845 63819.06093 63810.0034
300 65896.609 65887.551 65878.494 65869.436 65860.379 65851.321 65842.264 65833.206 65824.14855 65815.09103 65806.0335 65796.97598 65787.91845 65778.86093 65769.8034
310 67856.409 67847.351 67838.294 67829.236 67820.179 67811.121 67802.064 67793.006 67783.94855 67774.89103 67765.8335 67756.77598 67747.71845 67738.66093 67729.6034
320 69816.209 69807.151 69798.094 69789.036 69779.979 69770.921 69761.864 69752.806 69743.74855 69734.69103 69725.6335 69716.57598 69707.51845 69698.46093 69689.4034
Interest Rate
ConsumerPriceIndex
Data Table

15. 15 of 08
Question & Answers