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An Empirical Analysis of the Relationship between Monetary Policy Stance and Stock Price in Bangladesh

Author

Listed:
  • Hossain, Md. Sajib

    (Department of Finance, University of Dhaka)

  • Hossain, Md. Amzad

    (Department of Economics, University of Dhaka)

  • Amin, Shabnaz

    (Department of Finance, University of Dhaka)

Abstract

This paper investigates the empirical relationship between the monetary stance and stock market performance of Bangladesh using monthly data from January 2001 to December 2013. The empirical investigation was conducted using autoregressive distributed lag (ARDL) model consisting of five alternative measures of monetary indicators - 91 day T-bill rate, reserve money, broad money, call money rate and weighted average deposit rate and DSE General Index (DGEN) for stock market performance. In the case of using 91 day Treasury bill (T-bill) or call money rate as monetary indicators, a long-run co-integration relationship between DGEN, T-bill rate, CPI and exchange rate is found. However, in the case of broad money, reserve money and weighted average deposit rate, no long-run co-integration is found. Overall, this paper suggests that stock market valuation level is affected by monetary conditions.

Suggested Citation

  • Hossain, Md. Sajib & Hossain, Md. Amzad & Amin, Shabnaz, 2016. "An Empirical Analysis of the Relationship between Monetary Policy Stance and Stock Price in Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 39(1-2), pages 27-57, March-Jun.
    • Handle: RePEc:ris:badest:0793
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Monetary Policy; Stock Price; ARDL Model; Bangladesh;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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