This study explores the long-term dynamic relationship between equity prices and monetary variables for the period June 1998 to June 2008. Monetary variables include money supply, treasury bill rates, foreign exchange rates, and the consumer price index. The data have been examined using multivariate cointegration analysis and Granger causality analysis. Johansen and Juselius’ multivariate cointegration analysis indicates the presence of a long-term dynamic relationship between the equity market and monetary variables. Unidirectional Granger causality is found between monetary variables and the equity market. In the case of money supply, a positive relationship supports the liquidity hypothesis. Impulse response analysis indicates that the interest rate shock has a negative impact on equity returns in the Pakistani equity market. Exchange rates also have a negative impact on equity returns in the short run. However inflation has little impact on returns in the equity market. Variance decomposition analysis suggests that the interest rate, exchange rate, and money supply shocks are a substantial source of volatility for equity returns. The contribution of a monetary shock to the equity returns ranges from 4% to 16% over different time lags. Similarly, the VECM also confirms the presence of a short-term relationship between monetary variables and equity returns. This state of affairs demands that monetary variables be considered an important factor in determining stock market movements. Policymakers should be more vigilant and careful in designing monetary policies as it has a direct impact on cash inflows into the capital market and on the stability of the capital market.
KEYWORDS: Monetary variables, equity, causality, Pakistan.
JEL: G12, E31.

This study examines the impact of the quality of corporate governance, as measured by a specially constructed corporate governance index, on the expected cost of equity calculated using the capital asset pricing model (CAPM) approach. A total of 114 listed companies were investigated to analyze the relationship between the two variables for the period 2003 to 2007. The quality of corporate governance was measured by assigning weights to a set of related variables, although these variables were also considered individually. We used descriptive statistics, a correlation matrix, a simple ordinary least squares (OLS) approach, and fixed effect model to test the panel data collected. We found a negative relationship between managerial ownership and board size with the cost of equity, and a positive relationship between board independence, audit committee independence, and corporate governance with the cost of equity. These results could be due to the transition phase through which Pakistani companies are passing after the promulgation of the Code of Corporate Governance in 2002.
KEYWORDS: Corporate governance, cost of equity, Pakistan.
JEL: G30, G34.

Yunus, Muhammad with Alan Jolis, Banker to the Poor, The Story of Grameen Bank, Aurum Press Ltd, London, 1998, ISBN 978-1-85410-924-8, pp 313, Price: UK Pounds 8.99. It is the firm conviction of Muhammad Yunus, winner of the Nobel Peace Prize, that poverty can be eradicated and put away in museums once and for all. As the author puts it, the bottom line of his belief system is that ‘poverty does not belong in a civilized human society. It belongs in museums’. This is what motivated this stalwart to establish the Grameen Bank in Bangladesh, the pioneer in the field of micro-finance for the poor. Today, Grameen Bank can boast that it provides 2.5 billion dollars of micro-loans to over two million rural poor in the country.
KEYWORDS: Book review, Muhammad Yunus, Grameen Bank, microfinance, micro-finance.
JEL: N/A.