IMPACT OF EXCHANGE AND INTEREST RATE FLUCTUATIONS ON STOCK MARKET VAR: A STUDY OF THE KSE-100 AND OTHER SOUTH ASIAN INDICES

Abstract

Purpose: The purpose of this study is to investigate the stock market risk determinants in South Asian economies. It analyzes the impact of exchange rate and interest rate fluctuations on Value at Risk (VaR). It also assesses how macroeconomic variables influence market volatility for investors and policymakers.. Design/Methodology: Annual panel data for five South Asian countries: Pakistan, Bangladesh, India, Nepal and Sri Lanka, for the years 2014-2024, have been analyzed. Parametric VaR was employed to measure the risk in the stock market, and fixed-effects panel regression was used to analyze the effect of selected macroeconomic variables. Findings: The findings suggest that the impact of exchange rate and interest rate movements, GDP growth and oil prices are highly significant for the risk of the stock market, and also for the dynamics of the VaR. There is no significant direct effect of inflation, indicating that its effect may be indirect via other macroeconomic variables. Practical implications: The study is useful to the policymakers for formulating stable monetary policies and to the investors for risk management in watching important macro-economic indicators which influence the volatility of the markets. Originality: This study was a multi-country empirical evaluation of macroeconomic determinants of VaR in South Asia which was a parametric study. It emphasizes the interrelationships between the roles of domestic macroeconomic factors and external price shocks. The results add to the body of literature on financial-risk in the region.