Effects of Inflation, Ten-Year Bond Yield Rate, and VIX Index on the Stock Prices of Banks Across All Three Market Capitalizations in India

Abstract

This study investigates the impact of critical economic factors—namely, inflation, the 10-year bond yield rate, and the VIX index—on the stock prices of banks operating across different market capitalization segments in India. Through a comprehensive regression analysis framework, this research quantifies the relationships between these economic factors and bank stock prices while accounting for potential variances across large-cap, mid-cap, and small-cap banks. Utilizing data from the past five years, this analysis not only provides a nuanced understanding of how these macroeconomic indicators influence bank stock prices but also explores the specific effects on banks of varying market capitalizations. The findings reveal that small-cap companies are predominantly influenced by internal management decisions and capital allocation, whereas the consumer price index significantly predicts and reflects stock price behavior. Conversely, the bond yield rate and VIX index show minimal impact on stock prices. This study offers valuable insights for investors, policymakers, and financial institutions, aiding in the development of informed investment strategies and risk management practices.