International Science Community Association Research Journal of Recent Sciences 2277 - 2502 4 8 2015 August 2 Investor Sentiment and Stock Market Dynamics: A case of Pakistan 91 95 EN H. Saleem 1 Department of Management Sciences, Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST), Islamabad, PAKISTAN Khan M.A. 2 Alireza Miremadi 1 Sharif University of Technology, International Campus, IRAN EtemadolesllamiBakhtiyari Ali 2 Arash Dorvash 3 Mohammad Aghania 1 Department of management Limkokwing University, Limkokwing Cyberjaya, Malaysia Peyman Attariani 2 Babak Afshar 3 Behnaz Torabi 4 Mohammad Aghaei 1 Department of Business Management, Branch, Tarbiat Moddares University (TMU), Tehran, IRAN Abdolmaleki Sobhan 2 Institute for Management and Planning Studies, IMPS, Tehran, IRAN Amin Asadollahi 3 Department of Business Management, Science and Research Branch, Islamic Azad University, Tehran, IRAN MahinEslami Shahrbabaki 1 Psychiatry Department, Shahid Beheshti hospital, Kerman University of Medical Sciences, Kerman, IRAN Hassan Ziaaddini 2 Institue of Neuropharmachology, Psychiatry Department, Shahid Beheshti hospital, Kerman University of Medical Sciences, Kerman, IRAN Saeedi Hamed 3 Neurology Research Center, Kerman University of Medical Sciences, Kerman, IRAN Khorasani Farshid 4 Neuroscience Research Center, Institue of Neuropharmachology, Kerman University of Medical Sciences, Kerman, IRAN Moghaddam Pourhassan 1 Khorasgan branch, Islamic Azad University, Esfahan, IRAN Mahmud 2 LotfiAhmad Reza 3 Yaghoubi Yaghoub 1 Department of Mechanical Engineering, Khomeinishahr Branch, Islamic Azad University, Khomeinishahr, Isfahan, IRAN Karimian Majid 2 Department of Engineering, Tiran Branch, Islamic Azad University, Tiran, IRAN Kamran Amini 3 Shah RajeshKumar 1 Deptt. of Zoology, D.H.S.K. College, Dibrugarh, Assam, INDIA Das Loveleena 2 Deptt. of Life Sciences, Dibrugarh University, Assam, INDIA Bakhtyarabaslo 1 Islamic Azad University Central Tehran Branch, Faculty of Law, Tehran, IRAN Leila Noroozi 2 MohammadAli Abdolv 1 Department of Business Management, Science and Research Branch, Islamic Azad University (I.A.U), Tehran, IRAN MohammadJavad Taghipourian 2 HarishM.A. Nayaka 1 Department of Sugar Technology, Sir. M. Visvesvaraya Post Graduate Centre, University of Mysore, Mandya, 571 402, Karnataka, INDIA Chandrakanth Vinutha 2 Department of Biochemistry, Adichunchanagiri Biotechnology and Cancer Research Institute, Balagangadharanatha Nagara, 571 448, Nagamangala Taluk, Mandya, Karnataka, INDIA M.S.Lingaiah Prabhu 3 Shivalingaiah Sudarshan 4 Parikh KinjalV. 1 Division of Marine Biology, Department of Zoology, Faculty of Science, The M. S. University of Baroda, Vadodara-390002, Gujarat, INDIA D. ShahPinal 2 Pandya Khushali M. 3 Mankodi PradeepC. 4 Arezoo Momenian 1 Faculty of Art and Architecture, University of Zabol, IRAN Meysam Zekavat 2 Zaheri Fahimeh 1 Department of Management, Hormozgan University, IRAN Barkhordary Shokat 2 Department of Managementand Accounting,Sistan and Baluchestan University, IRAN Abbasali Abounoori 1 Department of Economic Science, Islamic Azad University, Central Tehran Branch, IRAN Shafiee Mona 2 Shahrzad Motevasel 3 Sara Ahmed 1 Foundation University Institute of Engineering and Management Sciences, Rawalpindi, PAKISTAN Naeem Ullah 2 > Research Article 2014 1 7 2015 August 2 Purpose: The main purpose of this article is to confirm that whether investor’s sentiments had any impact on the return of Karachi Stock Exchange (KSE). If the results are found to have an impact on returns of KSE, this will mark a new research area in the field to explain variation in returns based on behavioral factors. Time series analysis of auto regressive distributive lag (ARDL) is used in this study. The results indicate that our variables are co integrated in the long run. Investor sentiments were proven to have positive and significant coefficient that indicates its impact on KSE returns. Further, the macroeconomic variable of inflation was also statistically significant. The study proves that investor sentiments have a positive significant coefficient when it comes to explaining market returns. We believe that psychological factors that are rarely studied do have an important bearing on investor's decision making and consequently market returns of Pakistan in particular and world at large. This study will help both practitioners and academicians in the sense that investors are not rational and sentiments dictate their investment decisions. Copyright@ International Science Community Association