Economics and Business
Quarterly Reviews
ISSN 2775-9237 (Online)
Published: 26 May 2020
An Analysis of Interaction among Macroeconomic Variables through Cointegration and Causality Approach
Khalid Ashraf Chisti, Saila Shakeel, Khursheed Ali Ganai
University of Kashmir Srinagar, Jammu & Kashmir Bank Financial Services Ltd., Higher Colleges of Technology
Download Full-Text Pdf
10.31014/aior.1992.03.02.239
Pages: 811-824
Keywords: Crude Oil Prices, FIIs, Nifty-50, Granger Causality
Abstract
This paper aims at examining the relationship between stock market prices (Nifty 50) India & macroeconomic variables (Exchange rate, Foreign Institutional Investment and Crude oil prices) for the period 2007-08 Q1 to 2017-18 Q3. In order to achieve the objectives of the study, the researchers employed Granger Causality, multiple regression and Johansen’s Cointegration test. The results confirmed that there is a unidirectional relationship between crude oil prices and stock prices. Further the study confirms that FII and Oil prices are individually capable of influencing stock prices. Johansen’s Cointegration test exhibits the absence of long run relationship between stock prices and macroeconomic variables (Exchange Rate and Oil prices). However, the findings put forth by the present study affirmed that Foreign Institutional Investment and Oil prices are capable of individually influencing Stock prices of Nifty 50. The null hypothesis of regression model, that is, macroeconomic variables have no impact on stock prices has been rejected because the f-statistic shows that the macroeconomic variables have statistically significant relationship with stock prices (Nifty 50).
References
Ali, K., Chisti, K.A.& Sangmi, M. (2013). An analysis of bi-directional relationship between foreign exchange prices and stock market prices. Primax International Journal of Commerce and Management Research, 1(3), 24-27.
Bhuvaneshwari, D., & Ramya. K. (2017). Cointegration and causality between stock prices and exchange rate: empirical evidence from India. SDMIMD Journal of Management, 8(1), 31-38.
Chen, N., Roll, R., & Ross, S.A. (1986, July).Economic forces and the stock market. The Journal of Business, 59(3), 383-403.
Cheung, Y.W., & Ng, L.K. (1998).International evidence on the stock market and aggregate economic activity. Journal of Empirical Finance, 5(1998), 281-296.
Gay, R.D. (2008). Effect of macroeconomic variables on stock market returns for four emerging economies: Brazil, Russia, India, and China. International Business & Economics Research Journal, 7(3).
Humpe, A., & Macmillan, P. (2009) ‘Can macroeconomic variables explain long-term stock market movements? A comparison of the US and Japan. Applied Financial Economics, 19(2), 111-119.
Hosseini, S.M., Ahmad, Z., & Lai, Y.W. (2011). The role of macroeconomic variables on stock market index in China AND India. International Journal of Economics and Finance, 3(6).
Issahaku, H., Ustarz, Y., &Domanban, P. B. (2013). Macroeconomic variables and stock market returns in ghana: any causal link? Asian Economic and Financial Review, 3(8), 1044-1062.
Islam, K., &Habib, M. (2016). Domacro economic variables impact the indian stock market? Research Gate or http://www.publishingindia.com.
Masuduzzaman (2012). Impact of the Macroeconomic Variables on the Stock Market Returns: The Case of Germany and the United Kingdom. Global Journal of Management and Business Research, 12(16).
Maysami, R.C., & Koh, T.S. (2000).Avectorerr or correction model of the Singapore stock market .International Review of Economics and Finance 9 (2000),79–96.
Naik, P.k., &Padhi, P. (2012).The impact of macroeconomic fundamentals on stock prices revisited: evidence from Indian data. Eurasian Journal of Business and Economics, 5(10), 25-44.
Nandha, M., & Faff, R. (2008). Does oil move equity prices? A global view. Energy Economics, 30(3), 986-997.
Ratanapakorn, O., & Sharma, S.C. (2007). Dynamic analysis between the US stocker turns and the macro economic variables. Journal of Applied Financial Economics, 17(5), 369-377.
Rahman, A.A., Sidek, N.M.Z., & Tafri, F.H. (2009). Macroeconomic determinants of Malaysian stock market. African Journal of Business Management, 3(3), 095-106
Saeed, S., & Akhter, N. (2012). Impact of macroeconomic factors on banking index in Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 4(6).
Shabani, M., &Otomu, E. (2015). Impact of macroeconomic variables on UK stock market: A case study of FTSE100 index. University of East London.
Wongbangpo, P., & Sharma,S.C. (2002).Stock market and macroeconomic fundamental dynamic interactions: Asean-5 countries. Journal of Asian Economics, 13(1), 27-51.