Modelling (A)symmetric Nexus Between Macroeconomic Information Sentiment Biases and Stock Market Returns in Case of India: A Bound Test Approach

Abstract

This research attempts to scrutinise the asymmetric nexus of macroeconomic factors in determining the financial stock market performance using index returns of BSE-SENSEX and NSE-NIFTY as proxies for stock market performance in India. The auto-regressive distributed lag (ARDL) results demonstrate the long-term nexus of money supply, interest rates, gold prices, inflation, exchange rate, oil prices and foreign institutional investment (FII) in the capital market with stock returns. The non-linear ARDL (NARDL) results unequivocally support that the selected macroeconomic factors have an asymmetric nexus with the stock market performance. The study’s empirical findings have significant consequences for policy in designing the asset allocation decisions by the investor, portfolio managers and policymakers in the circumstances of a sudden positive or negative shock in the stock market. JEL Codes: E44, G10, C58