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Granger-causality between macroeconomic variables and stock market index: evidence from India

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  • Quadri, Syed
  • Masih, Mansur

Abstract

The focus of the study is on the Granger-causality between stock index and macroeconomic variables in India. The relationship between macroeconomic variables and stock market returns is, by now, well-documented in the literature. In this paper we examine the long-term equilibrium relationships and Granger-causality between selected macroeconomic variables on the Mumbai Stock Exchange BSE100 Index. The standard time series techniques are applied. The paper identifies a cointegrating relationship along with the identification of the exogeneity (leading) and endogeneity(following) of the variables. The Granger-causal chain evidenced in the findings tend to indicate that the stock index is the most endogenous(dependent) variable driven by market capitalization, inflation rate, interest rate and exchange rate. The Granger-causal chain Implications of the findings are immense for the policy makers. Also the findings of this paper present an opportunity to further expand the research in this field as well as extend it to other emerging economies like India.

Suggested Citation

  • Quadri, Syed & Masih, Mansur, 2017. "Granger-causality between macroeconomic variables and stock market index: evidence from India," MPRA Paper 110304, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:110304
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Granger-causality; macroeconomic variables; stock market; India;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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