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Impact of Macroeconomic Variables on Small, Mid and Large Cap Stocks: A Comparative Study of India Using VAR Approach

Vol 5, Issue 1, January - June 2018 | Pages: 90-101 | Research Paper  

 
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https://doi.org/10.17492/mudra.v5i01.13038


Author Details ( * ) denotes Corresponding author

1. * Shukrant Jagotra, Research Scholar, Research Scholar, Punjabi University, Patiala, Punjab, India (shukrant.jagotra.ubs@gmail.com)
2. Amanpreet Singh, Assistant Professor, School of Management Studies, Punjabi University, Patiala, Punjab, India (apsingh5@gmail.com)

The study examines and compares the relationships between Indian stock market indices (BSE Small, Mid and Large Cap) and five macroeconomic variables (Index of Industrial Production, Wholesale Price Index, Money Supply M3, Exchange Rate and Call Money Rate) over the period April 2006 to March 2017. The study applies Augmented-Dickey Fuller test to test the data stationarity. The analysis reveals that data is neither found to be stationary at level nor co-integrated. Hence, the study applies unrestricted Vector Autoregression (VAR) model to establish the short-run relationships. It is observed that macroeconomic variables significantly impact stock prices depending upon the type of index. As per the Granger Causality test, the study found unidirectional relationship from Exchange Rate to BSE Small Cap; unidirectional relationship from Exchange Rate to BSE Mid Cap & BSE Mid Cap towards IIP; bidirectional relationship between BSE Large Cap and Exchange Rate whereas unidirectional relationship from BSE Large Cap to IIP & from Money Supply M3 towards BSE Large Cap.

Keywords

Stock Prices; Macroeconomic Variables; Unit-Root Test; Unrestricted VAR; Granger Causality

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