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Long-run relationship between macroeconomic variables and stock market - evidence from India

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  • Naliniprava Tripathy

Abstract

This study examines the causal and long-term equilibrium relationships between macroeconomic variables and the Indian stock market during the period January 2005 to December 2009 by using Toda-Yamamoto Granger causality test, Johansen's cointegration tests, variance decomposition and impulse response function. The study finds that stock returns are cointegrated with a set of macroeconomic variables by providing a direct long-run equilibrium relation. Further, the study reveals unidirectional causality between BSE Sensex and S%P 500, BSE Sensex and exchange rate, BSE Sensex and WPI. The impulse response function and variance decomposition additionally support the argument that stock market is a leading indicator of changes in macroeconomic variables.

Suggested Citation

  • Naliniprava Tripathy, 2012. "Long-run relationship between macroeconomic variables and stock market - evidence from India," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 3(4), pages 291-307.
    • Handle: RePEc:ids:intjaf:v:3:y:2012:i:4:p:291-307
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    Cited by:

    1. F. Dilvin Taşkin & Efe Çağlar Çağlı & Umut Halaç, 2016. "The impact of oil price shocks on the volatility of the Turkish stock market," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 6(1), pages 1-23.

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