A country's stock market can actually go through the roof specifically because the whole economy is crashing and burning.
March 27, 2026
Original Paper
Stock Market Resilience under Macroeconomic Distress: Behavioral Hedging and Rational Risk Reallocation? Evidence from Pakistan
SSRN · 6209019
The Takeaway
While a booming stock market usually signals a healthy economy, this study found that in Pakistan, the index surged nearly 400% during a period of extreme political and natural disaster. The market decoupled from reality because investors viewed stocks as a 'savior of last resort'—the only place to hide capital from hyperinflation and a dying currency.
From the abstract
This study investigates the phenomenon of structural divergence between equity market valuation and macroeconomic performance in Pakistan. It examines the unprecedented paradoxical surge of PSX-100 index from approximately 40,000 points to 190,000 points between 2018 and 2026 amidst the macroeconomic distress, natural disasters and political instability. The study attempts to trace drivers of this apparent paradox and fundamental anomaly in the main hypotheses of Rational Risk Relocation and Beh