<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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.</p></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.

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

Studies in Business and Economics

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

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...

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

Published Online: Jun 15, 2017

Page range: 61 - 78

DOI: https://doi.org/10.1515/sbe-2017-0005

Keywords
BSE index, Economic Growth, crude oil price, ARDL, VECM

© 2017 Giri A. K. et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

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

Published Online: Jun 15, 2017

Page range: 61 - 78

DOI: https://doi.org/10.1515/sbe-2017-0005

KeywordsBSE index, Economic Growth, crude oil price, ARDL, VECM

© 2017 Giri A. K. et al., published by De Gruyter Open

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
BSE index, Economic Growth, crude oil price, ARDL, VECM