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Volatility Nexus Between Stock Market and Macroeconomic Variables in Bangladesh: an Extended GARCH Approach

Author

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  • Hasan Md. Abu

    (Bangladesh Civil Service (General Education), Ministry of Education, Dhaka, Bangladesh)

  • Zaman Anita

    (Rajshahi University, Rajshahi, Bangladesh)

Abstract

This paper examines the volatility of the Bangladesh stock market returns in response to the volatility of the macroeconomic variables employing monthly data of general index of Dhaka Stock Exchange (DSE) and four macroeconomic variables (Call Money Rate, Crude Oil Price, Exchange Rate and SENSEX of Bombay Stock Exchange) from January 2001 to December 2015. The results of GARCHS models reveal that the volatility of DSE return is significantly guided by the volatility of macroeconomic variables, such as, exchange rate and SENSEX. Specifically, volatility of the DSE is expected to 19% increase by 1% increase of exchange rate. Moreover, the volatility of the Bangladesh stock market returns is expected to dampen down by 2% with an increase in the volatility of Indian stock market of 1%. Thus, we can comment that adding exchange rate or stock returns of India in the GARCH model provides significant knowledge about the behaviour of the DSE volatility.

Suggested Citation

  • Hasan Md. Abu & Zaman Anita, 2017. "Volatility Nexus Between Stock Market and Macroeconomic Variables in Bangladesh: an Extended GARCH Approach," Scientific Annals of Economics and Business, Sciendo, vol. 64(2), pages 233-243, June.
    • Handle: RePEc:vrs:aicuec:v:64:y:2017:i:2:p:233-243:n:7
    DOI: 10.1515/saeb-2017-0015
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    Cited by:

    1. Endri Endri & Zaenal Abidin & Torang P. Simanjuntak & Immas Nurhayati, 2020. "Indonesian Stock Market Volatility: GARCH Model," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 16(2), pages 7-17.

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