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Macroeconomic Factors and the Indian Stock Market: Exploring Long and Short Run Relationships

Author

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  • Kiran Kumar Kotha

    (Indian Institute of Management Indore, India,)

  • Bhawna Sahu

    (Indian Institute of Management Indore, India)

Abstract

The rapid growth of Indian economy during the last two decades raises empirical questions regarding the fundamental connection between stock price and key macroeconomic indicators. This paper aims to examine long and short run relations between selected macroeconomic indicators and stock market returns with reference to India. This study employs monthly data from July 2001 to July 2015 since major stock market reforms viz., ban of Badla system, introduction of rolling settlement and introduction of stock derivatives, were all implemented in July 2001. With the help of cointegration and error correction model (ECM), the study reveals the presence of long run relation between the BSE Sensex and select macroeconomic indicators viz., Exchange Rate, wholesale price index, T-bill rates and M3.

Suggested Citation

  • Kiran Kumar Kotha & Bhawna Sahu, 2016. "Macroeconomic Factors and the Indian Stock Market: Exploring Long and Short Run Relationships," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1081-1091.
    • Handle: RePEc:eco:journ1:2016-03-34
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    References listed on IDEAS

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    Cited by:

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    2. Michael Anthony Adams, 2020. "Fiscal Policy and Stock Market Efficiency in the USA: An ARDL Bounds Testing Approach," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 9(2), pages 73-81.
    3. Sarat Chandra Nayak & Bijan Bihari Misra, 2019. "A chemical-reaction-optimization-based neuro-fuzzy hybrid network for stock closing price prediction," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-34, December.
    4. Subrata ROY, 2020. "Foreign trade policy and economic growth: Indian evidence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(624), A), pages 107-126, Autumn.
    5. Ruqayya Aljifri, 2020. "The Macroeconomy, Oil and the Stock Market: A Multiple Equation Time Series Analysis of Saudi Arabia," Economics Discussion Papers em-dp2020-27, Department of Economics, University of Reading.

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    More about this item

    Keywords

    Macroeconomic Indicators; Stock Returns; Co-integration;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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