You are here

Home » Content

The Impact of Macroeconomic Fundamentals on Stock Prices Revisited: Evidence from Indian Data

Journal Name:

  • Eurasian Journal of Business and Economics

Publication Year:

  • 2012

Key Words:

Author Name
Abstract (2. Language): 
The study investigates the relationships between the Indian stock market index (BSE Sensex) and five macroeconomic variables, namely, industrial production index, wholesale price index, money supply, treasury bills rates and exchange rates over the period 1994:04–2011:06. Johansen’s co-integration and vector error correction model have been applied to explore the long-run equilibrium relationship between stock market index and macroeconomic variables. The analysis reveals that macroeconomic variables and the stock market index are co-integrated and, hence, a long-run equilibrium relationship exists between them. It is observed that the stock prices positively relate to the money supply and industrial production but negatively relate to inflation. The exchange rate and the short-term interest rate are found to be insignificant in determining stock prices. In the Granger causality sense, macroeconomic variable causes the stock prices in the long-run but not in the short-run. There is bidirectional causality exists between industrial production and stock prices whereas, unidirectional causality from money supply to stock price, stock price to inflation and interest rates to stock prices are found.
Bookmark/Search this post with
FULL TEXT (PDF): 
PDF icon arastrmx_25820_5_pp_25-44.pdf
  • 10
25-44
  • English

REFERENCES

References: 

Abugri, B. A. (2008). Empirical Relationship between Macroeconomic Volatility and Stock
Return: Evidence from Latin American Markets, International Review of Financial Analysis,
17: 396-410.
Ahmed, S. (2008). Aggregate Economic Variables and Stock Market in India, International
Research Journal of Finance and Economics, 14: 14-64.
Akbar, M., Ali, S., and Khan, M. F. (2012). The Relationship of Stock Prices and
Macroeconomic Variables revisited: Evidence from Karachi Stock Exchange, African Journal
of Business Management, 6 (4): 1315-1322.
Asaolu, T. O. and Ogunmuyiwa, M.S. (2011). An Econometric Analysis of the Impact of
Macroecomomic Variables on Stock Market Movement in Nigeria, Asian Journal of Business
Management, 3 (1): 72-78.
Aylward, A. and Glen, J. (2000). Some International Evidence on Stock Price as leading
indicators of Economic Activity, Applied Financial Economics, 10(1): 1-14.
Bhattacharyya, B. and Mukherjee, J. (2006). Indian Stock Price Movement and the
Macroeconomic context – A Time Series Analysis, Journal of International Business and
Economics, 5 (1): 167-181.
Brooks. C. (2002). Introductory Econometrics for Finance, 2nd Edition, Cambridge University
Press.
Chen, N., Roll, R. and Ross, S. (1986). Economic forces and the Stock Market, Journal of
Business, 59: 383-403.
Enders, W. (2004). Applied Econometric Time Series, 2nd edition, Wiley Series in Probability
and Statistics.
Engel, R. F. and Granger W.J. (1987). Co-Integration and Error Correction: Representation,
Estimation, and Testing, Econometrica, 55 (2): 251-276.
Engle, R. F. and Rangel, J. G. (2005). The Spline GARCH model for Unconditional Volatility and
its Global Macroeconomic Causes, CNB Working Papers Series, 13: 1-28.
Fama, E. F. (1970). Efficient Capital Markets: A review of theory and empirical work, Journal
of Finance, 25: 383-417.
Fama, E. F. (1981). Stock Returns, Real Activity, Inflation, and Money, American Economic
Review, 71 (4): 545-565.
Fama E. F. & Schwert, W.G. (1977). Asset Returns and Inflation, Journal of Financial
Economics, 5: 115-146.
Gan, C., Lee, M., Yong, H. and Zhang, J. (2006). Macroeconomic Variables and Stock Market
Interactions: New Zealand Evidence. Investment Management and Financial Innovations, 3
(4): 89-101.
Johansen, S. and Juselius, K. (1990). Maximum Likelihood Estimation and inference on
Cointegration with application to the Demand for Money, Oxford Bulletin of Economics and
Statistics, 52 (2): 169-210.
Johansen, S. (1991). Estimation and Hypothesis testing of Cointegration Vector in Gaussian
Vector Autoregressive Models, Econometrica, 59: 1551-1581.
Pramod Kumar NAIK & Puja PADHI
Page | 44 EJBE 2012, 5 (10)
Maysami, R.C., Howe, L.C. and Hamaz, M.A. (2004), Relationship between Macroeconomic
Variables and Stock Market Indices: Cointegration Evidence from Stock Exchange of
Singapore’s All-S Sector Indices, Jurnal Penguruson, 24: 47-77.
Mookerjee, R. and Yu, Q. (1997). Macroeconomic Variables and Stock Prices in small Open
Economy: The case of Singapore, Pacific-Basin Finance Journal, 5: 377-788.
Mukherjee, T.K. and Naka, A. (1995). Dynamic relations between Macroeconomic Variables
and the Japanese Stock Market: An application of a Vector Error Correction Model, The
Journal of Financial Research, 2: 223-237.
Nelson, C. R. (1976). Inflation and rates of return on Common Stocks, Journal of Finance, 31
(2): 471-483.
Pal, K. and Mittal, R. (2011). Impact of Macroeconomic Indicators on Indian Indian Capital
Markets, Journal of Risk Finance, 12 (2): 84-97.
Pethe, A. and Karnik, A. (2000). Do Indian Stock Market Maters? Stock Market Indices and
Macroeconomic Variables, Economic and Political Weekly, 35 (5): 349-356.
Rahman, A. Abdul, Noor, Z. Mohd Sidek and Fauziah H. T. (2009). Macroeconomic
Determinants of Malaysian Stock Market, African Journal of Business Management, 3 (3): 95-
106.
Ratanapakorn, O. and Sharma, S. C. (2007). Dynamics analysis between the US Stock Return
and the Macroeconomics Variables, Applied Financial Economics, 17 (4): 369-377.
Ray, P. and Vani, V. (2003). What moves Indian Stock Market: A study on a linkage with Real
Economy in the post reform era, Working Paper, National Institute of Management, Kolkata,
1-19.
Robert, D.G. (2008). Effect of Macroeconomic Variables on Stock Market Returns for four
Emerging Economies: Brazil, Russia, India and China. International Business & Economics
Research Journal, 7 (3): 1-8.
Ross, S. A. (1976). The Arbitrage Theory of Capital Asset Pricing, Journal of Economic Theory,
13: 341-360.
Wongbampo, P. and Sharma, S.C. (2002). Stock Market and Macroeconomic Fundamental
Dynamic Interactions: ASEAN-5 Countries. Journal of Asian Economics, 13: 27-51.

Thank you for copying data from http://www.arastirmax.com