Jammu and Kashmir Academy of Art, Culture and Languages
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Revival of Indo- Central Asian Links Across Poonch-Rawalakot Road in J&K: A Study in Costs and Benefits
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Macro-Economic Variables And Stock Prices In India
Get PDFThis study investigates the effects of macroeconomic variables on stock prices in India using annual
data
for the period from January 1979 to December 2011. The multivariate regression was run using
thirteen macroeconomic variables on BSE Sensex using six different models. The null hypothesis
which states that macroeconomic variables collectively do not accord any impact on the share
prices is rejected at 0.05 level of significance in overall and post-liberalization case but is accepted in
pre-liberalization case. The results indicate that out of six models in all the three cases the model
with higher R2. has been selected for further analysis which justifies higher explanatory power of
macroeconomic variables in explaining stock prices.
Consistent with similar results of the developed as well as emerging market studies, inflation rate
and exchange rate react mainly negatively to stock prices in the Indian Stock Exchange. The
negative effect of Treasury bill rate implies that whenever the interest rate on Treasury securities
rise, investors tend
to switch out of stocks causing stock prices to fall. However, lagged money supply variables do not
appear to have a strong prediction of movements of stock prices while stocks do not provide
effective hedge against inflation specially in Manufacturing, Trading and Diversified sectors in the
CSE. These findings hold practical implications for policy makers, stock market regulators, investors
and
stock market analysts