| Peer-Reviewed

Impact of Macroeconomic Variables on Stock Returns: Evidence from Bombay Stock Exchange (BSE)

Received: 22 July 2015     Accepted: 29 July 2015     Published: 11 August 2015
Views:       Downloads:
Abstract

Numerous empirical studies have examined the relationship between macroeconomic variables and stock returns across different stock markets and time horizons by either outlining the influence of only domestic variables or a few global factors. The aim of this paper is to combine both global and domestic factors and extend this presumed relationship between stock returns and macroeconomic variables to the emerging market of India. Using time-series analysis, this paper employs Vector Autoregression (VAR) to determine the impact of macroeconomic variables on the stock returns of Bombay Stock Exchange (BSE). Findings of this paper indicate that a considerable impact of interest rate, gold price, exchange rate and money supply is observed for the stock returns of BSE. Additionally, a strong influence of the global macroeconomic factor of the world price index is also observed, which implies a gradual integration of BSE towards the global financial markets. Finally, the study highlights the managerial and policy implications, future research directions and limitations from the perspective of India.

Published in Journal of Investment and Management (Volume 4, Issue 5)
DOI 10.11648/j.jim.20150405.14
Page(s) 162-170
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Stock Returns, Macroeconomic Variables, Vector Autoregression Model, Bombay Stock Exchange, India

References
[1] Fama, E.F. [1981]. Stock returns, real activity, inflation and money. The American Economic Review, 71, 4, 545-565. Retrieved from http://www.jstor.org/stable/1806180
[2] Fama, E.F. [1990]. Stock returns, expected returns, and real activity. The Journal of Finance, 45, 4, 1089-1108. Retrieved from http://www.jstor.org/stable/2328716
[3] Chen, N., Roll, R. and Ross, S.A. [1986]. Economic forces and the stock market. The Journal of Business, 59, 3, 383-403. Retrieved from http://www.jstor.org/stable/2352710
[4] Flannery, M.J. and Protopapadakis, A.A. [2002]. Macroeconomic factors do influence aggregate stock returns. The Review of Financial Studies, 15, 3, 751-782. Retrieved from http://www.jstor.org/stable/2696720
[5] Ratanapakorn, O. and Sharma, S.C. [2007]. Dynamic analysis between the US stock returns and the macroeconomic variables. Applied Financial Economics, 17, 5, 369-377.
[6] Humpe, A. and 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.
[7] Schwert, G.W. [1990]. Stock returns and real activity: a century of evidence. The Journal of Finance, 45, 1237–1257.
[8] Cheung, Y. and Ng, L.K. [1998]. International evidence on the stock market and aggregate economic activity. Journal of Empirical Finance, 5, 3, 281-296. Retrieved from http://www.sciencedirect.com/science/article/pii/S092753989700025X
[9] Buyuksalvarci, A. [2010]. The effects of macroeconomics variables on stock returns: Evidence from Turkey. European Journal of Social Sciences, 14, 3, 404-416. Retrieved from http://www.eurojournals.com/ejss_14_3_06.pdf
[10] Kwon, C.S. and Shin, T.S. [1999]. Cointegration and causality between macroeconomic variables and stock market returns. Global Finance Journal, 10, 1, 71-81. Retrieved from http://www.sciencedirect.com/science/article/pii/S104402839900006X
[11] Ibrahim, M.H. and Aziz, H. [2003]. Macroeconomic Variables and the Malaysian equity market: A view through rolling subsamples. Journal of Economic Studies, 30, 1, 6-27.
[12] Tan, B.C., Loh, W.L. and Zainudin, A. [2006]. Dynamics Between Stock Price, Oil Price And Macroeconomic Activities: A VAR And Impulse Response Approach. Proceedings of the 2nd IMT-GT Regional Conference on Mathematics, Statistics and Applications, University of Science Malaysia, pp. 167-179.
[13] Brown, S.J. and Otsuki, T. [1993]. Risk premia in Pacific-Basin capital markets. Pacific-Basin Finance Journal, 1, 3, 235-261. Retrieved from http://www.sciencedirect.com/science/article/pii/0927538X9390025D
[14] Buckberg, E. [1995]. Emerging stock markets and international asset pricing. The World Bank Economic Review, 9, 1, 51–74.
[15] Harvey, C.R. [1995]. Predictable risk and returns in emerging markets. The Review of Financial Studies, 8, 3, 773–816. Retrieved from http://www.jstor.org/stable/2962239
[16] Bilson, C.M., Brailsford, T.J. and Hooper, V.J. [2001]. Selecting macroeconomic variables as explanatory factors of emerging stock market returns. Pacific-Basin Finance Journal, 9, 4, 401-426. Retrieved from http://ssrn.com/abstract=201908
[17] Lint, C.R. [2002]. Risk profiles: how do they change when stock markets collapse?. Journal of International Financial Markets, 12, 1, 59–80. Retrieved from http://www.sciencedirect.com/science/article/pii/S1042443101000488
[18] Fama, E.F. and French, K.R. [1989]. Business conditions and expected returns on stocks and bonds. Journal of Financial Economics, 25, 1, 23-49. Retrieved from http://www.sciencedirect.com/science/article/pii/0304405X89900950
[19] Nasseh, A. and Strauss, J. [2000]. Stock prices and domestic and international macroeconomic activity: a cointegration approach. The Quarterly Review of Economics and Finance, 40, 2, 229-245. Retrieved from http://www.sciencedirect.com/science/article/pii/S106297699900054X
[20] Kandir, S.Y. [2008]. Macroeconomic variables, firm characteristics and stock returns: Evidence from Turkey. International Research Journal of Finance and Economics, 16, 35-45. Retrieved from http://www.eurojournals.com/finance.htm
[21] Sohail, N. and Hussain, Z. [2009]. Long-run and short-run relationship between macroeconomic variables and stock prices in Pakistan: The case of Lahore stock exchange. Pakistan Economic and Social Review, 47, 2, 183-198.
[22] Chakravarty, S. [2006]. Stock Market And Macroeconomic Behavior In India. Discussion Paper 106, Institute of Economic Growth, Delhi.
[23] Ahmed, S. [2008]. Aggregate economic variables and stock markets in India. International Research Journal of Finance and Economics, 14, 141-163. Retrieved from http://www.eurojournals.com/finance.htm
[24] Agrawalla, R.K. and Tuteja, S.K. [2008]. Share prices and macroeconomic variables in India: An approach to investigate the relationship between stock markets and economic growth. Journal of Management Research, 8, 3, 136-146.
[25] Singh, D. [2010]. Causal relationship between macroeconomic variables and stock market: A case study for India. Pakistan Journal of Social Sciences [PJSS], 30, 2, 263-274.
[26] 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, 1-8.
[27] Maysami, R.C. and Koh, T.S. [2000]. A vector error correction model of the Singapore stock market. International Review of Economics and Finance, 9, 1, 79-96. Retrieved from http://www.sciencedirect.com/science/article/pii/S1059056099000428
[28] Johansen, S. and Juselius, K. [1990]. Maximum likelihood estimation and inference on cointegration - with applications to the demand of money. Oxford Bulletin of Economics and Statistics, 52, 2, 169-210.
[29] Durbin, J. and Watson, G.S. [1951]. Testing for serial correlation in least squares regression II. Biometrika, 38(1-2), 159-177.
[30] Brooks, C. (2008). Introductory Econometrics for Finance (2nd ed.). New York: Cambridge University Press.
Cite This Article
  • APA Style

    Nabila Nisha. (2015). Impact of Macroeconomic Variables on Stock Returns: Evidence from Bombay Stock Exchange (BSE). Journal of Investment and Management, 4(5), 162-170. https://doi.org/10.11648/j.jim.20150405.14

    Copy | Download

    ACS Style

    Nabila Nisha. Impact of Macroeconomic Variables on Stock Returns: Evidence from Bombay Stock Exchange (BSE). J. Invest. Manag. 2015, 4(5), 162-170. doi: 10.11648/j.jim.20150405.14

    Copy | Download

    AMA Style

    Nabila Nisha. Impact of Macroeconomic Variables on Stock Returns: Evidence from Bombay Stock Exchange (BSE). J Invest Manag. 2015;4(5):162-170. doi: 10.11648/j.jim.20150405.14

    Copy | Download

  • @article{10.11648/j.jim.20150405.14,
      author = {Nabila Nisha},
      title = {Impact of Macroeconomic Variables on Stock Returns: Evidence from Bombay Stock Exchange (BSE)},
      journal = {Journal of Investment and Management},
      volume = {4},
      number = {5},
      pages = {162-170},
      doi = {10.11648/j.jim.20150405.14},
      url = {https://doi.org/10.11648/j.jim.20150405.14},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jim.20150405.14},
      abstract = {Numerous empirical studies have examined the relationship between macroeconomic variables and stock returns across different stock markets and time horizons by either outlining the influence of only domestic variables or a few global factors. The aim of this paper is to combine both global and domestic factors and extend this presumed relationship between stock returns and macroeconomic variables to the emerging market of India. Using time-series analysis, this paper employs Vector Autoregression (VAR) to determine the impact of macroeconomic variables on the stock returns of Bombay Stock Exchange (BSE). Findings of this paper indicate that a considerable impact of interest rate, gold price, exchange rate and money supply is observed for the stock returns of BSE. Additionally, a strong influence of the global macroeconomic factor of the world price index is also observed, which implies a gradual integration of BSE towards the global financial markets. Finally, the study highlights the managerial and policy implications, future research directions and limitations from the perspective of India.},
     year = {2015}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Impact of Macroeconomic Variables on Stock Returns: Evidence from Bombay Stock Exchange (BSE)
    AU  - Nabila Nisha
    Y1  - 2015/08/11
    PY  - 2015
    N1  - https://doi.org/10.11648/j.jim.20150405.14
    DO  - 10.11648/j.jim.20150405.14
    T2  - Journal of Investment and Management
    JF  - Journal of Investment and Management
    JO  - Journal of Investment and Management
    SP  - 162
    EP  - 170
    PB  - Science Publishing Group
    SN  - 2328-7721
    UR  - https://doi.org/10.11648/j.jim.20150405.14
    AB  - Numerous empirical studies have examined the relationship between macroeconomic variables and stock returns across different stock markets and time horizons by either outlining the influence of only domestic variables or a few global factors. The aim of this paper is to combine both global and domestic factors and extend this presumed relationship between stock returns and macroeconomic variables to the emerging market of India. Using time-series analysis, this paper employs Vector Autoregression (VAR) to determine the impact of macroeconomic variables on the stock returns of Bombay Stock Exchange (BSE). Findings of this paper indicate that a considerable impact of interest rate, gold price, exchange rate and money supply is observed for the stock returns of BSE. Additionally, a strong influence of the global macroeconomic factor of the world price index is also observed, which implies a gradual integration of BSE towards the global financial markets. Finally, the study highlights the managerial and policy implications, future research directions and limitations from the perspective of India.
    VL  - 4
    IS  - 5
    ER  - 

    Copy | Download

Author Information
  • Department of Accounting and Finance, North South University, Dhaka, Bangladesh

  • Sections