Author(s): Dharmendra Singh
In this research paper, attempt has been made to explore the relation especially the causal relation betw een stock market index i.e. BSE Sensex and three key macro economic variables of Indian economy by using correlation, unit root sta tionarity tests and Granger causality test. Monthly data has been used from April,1995 to March, 2009 for all the variables, like, BSE Sensex, wholesale price index (WPI), index of industrial production(IIP) and exchange rate(Rs/$). Results showed that the stock market index, the industrial production index, exchange rate, and wholesale price index contained a unit root and were integrated of order one. Granger caus ality test was th en employed. The Granger causality test indicated that IIP is the only variable having bilateral causal relationship with BSE Sensex. WPI is having strong correlation with Sensex but it is having unilateral causality with BSE Sensex. Therefore, it is concluded that, Indian stock market is approaching towards informational effic iency at least with respect to two macroeconomic variables, viz. exchange rate and inflation (WPI).