IMPACT OF MACROECONOMIC VARIABLES ON NIFTY RETURNS IN INDIA

Rajesh Jayakar Pai, Dr. S. Kareemulla Basha

Abstract


Stock markets play a significant role in any economy. Besides being the barometer of economic performance, they convey a lot about the sentiments of domestic as well as foreign investors. Owing to the significance and dynamism of stock markets, it has always attracted the attention of researchers across the world. Equally significant is the fact that the empirical evidences generated from such studies have hardly been consistent. Hence, this provides further room to explore the relationship between various macro-economic variables and the stock market returns. Besides other variables as Real GDP, Inflation (CPI), Interest rates (90-days T-Bill rate), IIP and FIIs, I am trying  to assess the impact of certain unique variables as unemployment, Crude oil prices, Foreign Exchange rate (INR –USD), Gold prices on the National Stock Exchange of India (NSE). Using the Augmented Dickey-Fuller (ADF) Test, ARIMA and Granger Causality tests we have tried to find the short-term, long-term and causal (unidirectional and bidirectional) relationships between variables..  The data set used in the study includes monthly data collected over a period of 10 years from May 2002 to April 2013.Granger Causality test has been employed to reveal whether variables are depending on stock market or vice versa.

The outcome of the study is expected to contribute further to the understanding of the behavior of stock market in response to the changes in the variables included in the study. This will serve as a guiding light to investors, speculators, arbitragers, policy makers along with the researchers who might want to carry the study further on the behavior of stock markets.

Key Words: Stock Market, Macro-economic variables, Crude Oil, Gold Prices.

 


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ISSN : 2251-1563