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An Empirical Study of the Relationship between Macroeconomic Variables and Stock Price: A Study on Dhaka Stock Exchange (DSE)

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Author Info

  • Md. Mohiuddin

    ()
    (IBA, University of Dhaka, Bangladesh)

  • Md. Didarul Alam

    (Independent University, Bangladesh)

  • Abdullah Ibneyy Shahid

    (IBA, University of Dhaka, Bangladesh)

Abstract

Literature strongly supports vibration of the stock price as a consequence of various macroeconomic factors (Darrat, 1990; Fama & Schwert, 1977; Jaffe & Mandelker, 1976; Nelson, 1976; Pearce & Roley, 1985; Ripley, 1973). This study has investigated the explanatory power of various macro-factors such as inflation rate, exchange rate, interest rate, money supply and production index on the variability of the stock price in Bangladesh. Multiple regression analysis has been conducted to asses the relationship between the stated macro economic factors with stock price. All share price index of the Dhaka Stock Exchange has been used as a proxy for stock price, the dependent variable of the study. No significant relationship has been found between the stock price and any of the macroeconomic factors. The study bodes well for advanced empirical models with additional macroeconomic variables.

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Bibliographic Info

Paper provided by American International University-Bangladesh, Office of Research and Publications (ORP) in its series AIUB Bus Econ Working Paper Series with number AIUB-BUS-ECON-2008-21.

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Length: 23
Date of creation: Jun 2008
Date of revision: Jun 2008
Handle: RePEc:aiu:abewps:74

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  1. Lawrence H. Summers, 1981. "Inflation and the Valuation of Corporate Equities," NBER Working Papers 0824, National Bureau of Economic Research, Inc.
  2. Martin Feldstein, 1983. "Inflation, Tax Rules, and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 199-220 National Bureau of Economic Research, Inc.
  3. Douglas K. Pearce & V. Vance Roley, 1985. "Stock Prices and Economic News," NBER Working Papers 1296, National Bureau of Economic Research, Inc.
  4. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
  5. Jaffe, Jeffrey F & Mandelker, Gershon, 1976. "The "Fisher Effect" for Risky Assets: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 31(2), pages 447-58, May.
  6. Pearce, Douglas K & Roley, V Vance, 1983. " The Reaction of Stock Prices to Unanticipated Changes in Money: A Note," Journal of Finance, American Finance Association, vol. 38(4), pages 1323-33, September.
  7. Martin Feldstein, 1983. "Inflation and the Stock Market," NBER Chapters, in: Inflation, Tax Rules, and Capital Formation, pages 186-198 National Bureau of Economic Research, Inc.
  8. Nathan Lael Joseph & Panayiotis Vezos, 2006. "The sensitivity of US banks' stock returns to interest rate and exchange rate changes," Managerial Finance, Emerald Group Publishing, vol. 32(2), pages 182-199.
  9. Mark J. Flannery & Aris A. Protopapadakis, 2002. "Macroeconomic Factors Do Influence Aggregate Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 751-782.
  10. David M. Cutler & James M. Poterba & Lawrence H. Summers, 1988. "What Moves Stock Prices?," NBER Working Papers 2538, National Bureau of Economic Research, Inc.
  11. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
  12. Darrat, Ali F., 1990. "Stock Returns, Money, and Fiscal Deficits," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(03), pages 387-398, September.
  13. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
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