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Empirical Relationship Between Macroeconomic Variables and Stock Market: Evidence from India

Author

Listed:
  • Miklesh Prasad Yadav
  • Aastha Khera
  • Nandita Mishra

Abstract

This study investigates the relationship between the Indian stock market price behaviour and macroeconomic variables. The proxy for the Indian stock market is the BSESENSEX while Foreign Reserve, Exchange Rate (Indian vs. US Dollar) and CPI are proxies for the macroeconomic variables. The Johansen Cointegration Test and the Vector Error Correction Model (VECM) on monthly data collected from websites of Reserve Bank of India and Bombay Stock Exchange within the time period of January 2000 and February 2020 have been applied. We observe a contradiction between the results of trace statistics and the maximal eigenvalue of the Johansen Cointegration. The -trace statistics of cointegration allude to the long-run association between the Indian stock market and its constituent macroeconomic variables. The VECM is then applied to examine the long-run and short-run causalities and the results reveal the same. This study has profound implications for investors to diversify their portfolio, considering the impact of the constituent selected macroeconomic variables in the short run and long run. JEL Codes: B22, J11, R53

Suggested Citation

  • Miklesh Prasad Yadav & Aastha Khera & Nandita Mishra, 2022. "Empirical Relationship Between Macroeconomic Variables and Stock Market: Evidence from India," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 47(1), pages 119-129, February.
    • Handle: RePEc:sae:manlab:v:47:y:2022:i:1:p:119-129
    DOI: 10.1177/0258042X211053166
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    References listed on IDEAS

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    More about this item

    Keywords

    Indian stock market; macroeconomic variables; long-run equilibrium; short-run equilibrium; Johansen Cointegration; Vector Error Correction Model;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock

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