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Macroeconomic Fundamentals as Determinants of Equity Prices: An Empirical Analysis for India

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  • Pushpa Trivedi
  • Samir Ranjan Behera

Abstract

This study is an attempt to examine the interlinkages between equity prices of Bombay Stock Exchange Sensex (BSE Sensex) and select macroeconomic variables in India in a time series framework. In the first stage of the empirical investigation, the study tries to investigate both the long-run and short-run relationship of equity price (BSE Sensex) with macroeconomic variables, viz., Index of Industrial Production (IIP), Wholesale Price Index (WPI), interest rates (3-month T-bill rate), money supply (M3), Foreign Institutional Investments (FIIs) as well as Morgan Stanley Capital International (MSCI) world index in a cointegration and vector error-correction framework. In the next stage of the empirical investigation, the study explores the dynamic interrelationship of equity prices (BSE Sensex) with different macroeconomic indicators in a cointegrated Vector Autoregressive (VAR) framework by analyzing the impulse response functions and variance decomposition results.

Suggested Citation

  • Pushpa Trivedi & Samir Ranjan Behera, 2012. "Macroeconomic Fundamentals as Determinants of Equity Prices: An Empirical Analysis for India," The IUP Journal of Applied Finance, IUP Publications, vol. 18(3), pages 5-30, July.
    • Handle: RePEc:icf:icfjaf:v:18:y:2012:i:3:p:5-30
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    Cited by:

    1. Tarak Nath Sahu & Krishna Dayal Pandey, 2020. "Money Supply and Equity Price Movements During the Liberalized Period in India," Global Business Review, International Management Institute, vol. 21(1), pages 108-123, February.

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