alexa Causal Relationship between Macro-Economic Indicators and Stock Market in India
Business & Management

Business & Management

Journal of Stock & Forex Trading

Author(s): Dr Naliniprava Tripathy

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This paper investigated the market efficien cy and causal relationship between selected Macroeconomic variables and the Indian st ock market during the period January 2005 to February 2011 by using Ljung-Box Q test, Breusch-Godfrey LM test, Unit Root test, Granger Causality test. The study confirms the presence of autocorrelation in the Indian stock market and macro economic variables which implies that the market fell into form of Efficient Market Hypothesis. Further th e Granger-causality test show s evidence of bidirectional relationship between interest rate and stoc k market, exchange rate and stock market, international stock market and BSE volume, ex change rate and BSE volume. So it suggests that any change of exchange rate, interest rate and international market significantly influencing the stock market in the econom y and vice versa. The study also reported unidirectional causality running from internatio nal stock market to domestic stock market, interest rate, exchange rate and inflation rate indicating sizeable influe nce in the stock market movement in the considered period. The study points out that the Indian stock market is sensitive towards changing behavior of international market, exchange rate and interest rate in the economy and they can be used to predict stock market price fluctuations.

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This article was published in Asian Journal of Fi nance & Accounting and referenced in Journal of Stock & Forex Trading

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