The Impact of Macroeconomic Indicators on Indian Stock Prices: An Empirical Analysis

Abstract

The purpose of the present study is to examine the long run and the short run relationship between stock price and a set of macroeconomic variables for Indian economy using annual data from 1979 to 2014. The long run relationship is examined by implementing the ARDL bounds testing approach to co-integration. VECM method is used to test the short and long run causality and variance decomposition is used to predict long run exogenous shocks of the variables. The results confirm a long run relationship among the variables. Evidence suggests that Economic growth, inflation and exchange rate influence stock prices positively. However, crude oil price influences the stock price negatively. This implies that the increase in oil price induces inflationary expectation in the mind of investors and hence stock prices are adversely affected. The VECM result indicates that short run and long run unidirectional causality running from economic growth and FDI to stock prices in India. The result of the variance decomposition shows that stock market development in India is mostly explained by its own shocks. The Government can take steps to control the crude oil price in India and Investors’ confidence has to be gained by boosting the economic growth of the economy through appropriate policy tools.

Evaluation of the Impact of Macroeconomic Variables on Stock Market Performance in Nigeria

“…This result indicates that GDP significantly and positively impacts on share price index, thus, Ho4 is rejected and the alternative which states otherwise accepted. This result is in harmony with the findings of (Nijam et al 2015;Giri & Joshi, 2017;Kolapo et al, 2018) while objecting the findings of Gatsimbazi et al (2018).…”

“…This result implies that the inflation rate has significant negative influence on share price index and so, Ho3 is rejected and the alternative suggestion which states that inflation rate has significant influence on share price index is hereby accepted. This result is in agreement with the findings of (Talla 2013;Gatsimbazi et al, 2018) while disagreeing with the findings of (Ouma & Muriu, 2014;Giri & Joshi, 2017) whose studies revealed the inflation rate had significant positive impact on share prices. The result also conflicts with the findings of (Barno, 2014;Golam et al, 2017;Khalid & Khan, 2017) whose studies did not find inflation rate influencing share prices.…”

“…Thus, Ho1 is accepted and the alternative suggestion which states otherwise rejected. However, this finding is not consistent with the findings of (Khodaparasti, 2014;Nijam, et al, 2015;Giri & Joshi, 2017;Golam et al, 2017;Khalid & Khan, 2017;Epaphra & Salema, 2018;Megaravalli & Sampagnaro, 2018) who found in their studies that exchange rate significantly and positively influenced stock market performance. The result also contradicts the findings of Khan and Khan (2018) whose study revealed that exchange rate influenced stock prices of Karachi Stock Exchange in Pakistan significantly and negatively in the short run.…”

“…The study also established that increase in money supply did not have positive impact on stock market performance. Giri and Joshi (2017) extended the study in India using Auto Regressive Distributed Lag (ARDL) technique and Vector Error Correction Model (VECM) to examine the long run and short run association between macroeconomic variables and the stock prices in India from 1979-2014. The study found a long run relationship among the variables and established that inflation, exchange rate and economic growth had significant positive impact on stock prices while crude oil price affected stock prices negatively.…”

Determination of Sharia Stock Price Through Analysis of Fundamental Factors and Macro Economic Factors

“…The result of the researches said that stock price changes are influenced by macro economic factors such as the exchange rate, interest rate and Gross Domestic Product (GDP) (Mulyani, 2014). However, there are also research results which state that these three variables do not significantly influence stock prices (Chirchir, 2014), (Suriani, Kumar, Jamil, Muneer, 2015), (Giri and Joshi, 2017). Because stockis investment instruments that provide high returns, but stockis also risky, it requires knowledge about the factors that can influence stock price movements.…”