Journal Press India^®

Author Details ( * ) denotes Corresponding author

The paper examines the impact of selected macroeconomic variables on the Indian stock market. The macroeconomic variables used in the study are interest rate, exchange rate, index of industrial production (IIP) and gold price. BSE Sensex is used as proxy for Indian stock market. We have used the monthly data for all the variables from January 2001 to December 2016. Regression analysis and Granger Causality test is used to establish the relationship between the stock market and macroeconomic variables. The results show significant impact of only exchange rate on stock returns. All the other variables have shown insignificant impact on the stock market returns. The results of Granger causality test show unidirectional relationship between exchange rate and stock prices and bi-directional relation between IIP and SENSEX.

Keywords

Stock market; Interest rate; Index of Industrial Production (IIP); Exchange rate; BSE Sensex; Granger Causality

1. Ahmad, Z., Ahmad, Z., Khan, M. S., & Javaid, U. (2012). Capturing the stock price movements at Karachi Stock exchange: Are macroeconomic variables relevant? African Journal of Business Management, 6(8), 3026-3034.
2. Aijaz, U., Faisal, M.,& Meraj, S. (2016). Impact of oil and gold prices on stock market index. Journal of Business Strategies, 10(2), 69-84.
3. Auzairy, N. A., Ahmad, R., & Ho, C. S. (2011). Stock market deregulation, macroeconomic variables and stock market performances. International Journal of Trade, Economics and Finance, 2(6), 495-500.
4. Baranidharan, S. (2016). The dynamic long-run and short-run linkages between exchange rates and BSE Sensex return. IPE Journal of Management, 6(2), 92-105.
5. Cota, B., Erjavec, N., & Arneric, J. (2008, June). The impact of macroeconomic variables on Croatian stock market. In An Enterprise Odyssey. International Conference Proceedings, (pp. 70-80) University of Zagreb, Faculty of Economics and Business.
6. Fama, E. F. (1981). Stock returns, real activity, inflation, and money. The American Economic Review, 71(4), 545-565.
7. Fama, E. F. (1990). Stock returns, expected returns, and real activity. The Journal of Finance, 45(4), 1089-1108.
8. Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 37(3), 424-438.
9. Gupta, R., & Reid, M. (2013). Macroeconomic surprises and stock returns in South Africa. Studies in Economics and Finance, 30(3), 266-282.
10. Hussainey, K., & Khanh Ngoc, L. (2009). The impact of macroeconomic indicators on Vietnamese stock prices. The Journal of Risk Finance, 10(4), 321-332.
11. Kaur, D. (2009). Correlation and causality between stock market and macroeconomic variables in India: An empirical study. M. Phil. dissertation, Thapar University Patiala. Retrieved from http://dspace.thapar.edu:8080/jspui/bitstream/10266/856/1/Deepinder.pdf
12. Kwon, C. S., Shin, T. S., & Bacon, F. W. (1997). The effect of macroeconomic variables on stock market returns in developing markets. Multinational Business Review, 5(2), 63-70.
13. Malkiel, B. G., & Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance, 25(2), 383-417.
14. Mashayekh, S., Moradkhani, H. H., & Jafari, M. (2011). Impact of macroeconomic variables on stock market: The case of Iran. Journal of Business and Economic Research, 2(2), 350-361.
15. Menike, L. M. C. S. (2010). The effect of macroeconomic variables on stock prices in emerging Sri Lankan stock market. Sabaragamuwa University Journal, 6(1), 50-67.
16. Mohi-u-Din, S., & Mubasher, H. M. (2013). Macroeconomic variables on stock market interactions: The Indian experience. Advances in Management, 6(8), 39-51.
17. Momani, G. F., & Alsharari, M. A. (2012). Impact of economic factors on the stock prices at Amman stock market (1992-2010). International Journal of Economics and Finance, 4(1), 151-159.
18. Pal, K., & Mittal, R. (2011). Impact of macroeconomic indicators on Indian capital markets. The Journal of Risk Finance, 12(2), 84-97.
19. Pilinkus, D., & Boguslauskas, V. (2015). The short-run relationship between stock market prices and macroeconomic variables in Lithuania: An application of the impulse response function. Engineering Economics, 65(5), 26-34.
20. Plachý, R., & Rasovec, T. (2015). Impact of economic indicators on development of capital market. Ekonomie a Management, 18(3), 101-112.
21. Pramod Kumar, N. A. I. K., & Puja, P. (2012). The impact of macroeconomic fundamentals on stock prices revisited: An evidence from Indian data. Retrieved from http://mpra.ub.uni-muenchen.de/38980/
22. Ray, P., & Vani, V. (2012). What moves Indian stock markets: A study on the linkage with real economy in post-reform era. Retrieved from http://hdl.handle.net/2275/219
23. Raza, N., Ibrahimy, A. I., Ali, A., & Ali, S. (2016). Gold and Islamic stocks: A hedge and safe haven comparison in time frequency domain for BRICS markets. The Journal of Developing Areas, 50(6), 305-318.
24. Roll, R., & Ross, S. A. (1980). An empirical investigation of the arbitrage pricing theory. The Journal of Finance, 35(5), 1073-1103.
25. Ross, S. A. (1976). The arbitrage theory of capital asset pricing. Journal of economic theory, 13(3), 341-360.
26. Singh, G. (2016). The impact of macroeconomic fundamentals on stock prices revised: A study of Indian stock market. Journal of International Economics, 7(1), 76-91
27. Srinivasan, P. (2011). Causal nexus between stock market return and selected macroeconomic variables in India: Evidence from the National Stock Exchange (NSE). IUP Journal of Financial Risk Management, 8(4), 7-24.
28. Suganthi, P., & Dharshanaa, C. (2014). Interrelationship between FII and stock market and their causal relationship with selected macroeconomic variables in India. TSM Business Review, 2(1), 29-46.
29. Tripathi, V., &Kumar, A. (2015). Do macroeconomic variables affect stock returns in BRICS markets? An ARDL approach. Retrieved from http://www.publishingindia.com.
30. Zakaria, Z., & Shamsuddin, S. (2012). Empirical evidence on the relationship between stock market volatility and macroeconomics volatility in Malaysia. .Journal of Business Studies Quarterly, 4(2), 61-71.