Macroeconomic Forces and Stock Prices:Evidence from the Bangladesh Stock Market
AbstractThe study examines the influence of a selective set of macroeconomic forces on stock market prices in Bangladesh. The Dhaka Stock Exchange All-Share Price Index (DSI) is used to represent the prices in the stock market while deposit interest rates, exchange rates, consumer price index (CPI), crude oil prices and broad money supply (M2) are selected to represent the macroeconomic variables affecting the stock prices. Using monthly data from 1992m1-2011m6, several time-series techniques were used which include Cointegration, Vector Error Correction Model (VECM), Impulse Response Functions (IRF) and Variance Decompositions (VDC). Cointegration analysis, along with the VECM, suggests that interest rates, crude oil prices and money supply are positively related to stock prices, exchange rates are negatively related to stock prices, and CPI is insignificant in influencing the stock prices, in the long-run. Both the IRF and VDC suggest that shocks to macroeconomic variables explain a small proportion of the forecast variance error of the DSI, but these effects persist for a long period.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 46528.
Date of creation: 24 Apr 2013
Date of revision:
Asset Prices; Macroeconomic Factors; Dhaka Stock Exchange; Cointegration; VEC;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-27 (All new papers)
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