The Relationship Between Selected Macroeconomic Variables and Indian Stock Market Performances: An Empirical Analysis

Abstract

The present study focuses on examining the relationship found in macroeconomic variables, namely, interest rate, inflation rate, gross domestic product, foreign exchange reserves, interest rates of the United States with the stock market index of India viz the Bombay Stock Exchange from the pre-reform era of liberalization -1980 to 2019. Various studies in the well-documented literature tried to study the association between macroeconomic variables and the stock market in diverse ways and forms. This paper encapsulates the long-run and short-run dynamics of the relation between the variables, as mentioned above, and the economy's adjustment speed towards a long-run equilibrium with the ARDL model's help. The empirical analysis displays a strong relationship between India's stock market and India's interest rates and that of the United States, the Gross Domestic Product of India, and its foreign exchange reserves. Further, it shows a negative and significant long term adjustment Coefficient.