Immediate Impact of Stock Market Fluctuations on GDP: The Case of Bangladesh

Abstract

Stock market in Bangladesh has been experiencing tremendous volatility since the first quarter of 2011, as the main stock index of the country suddenly dropped from a point of 8000 to 5000 in that time, and it is still fluctuating at large extent. The possible macroeconomic consequence of this unusual event is now a topic of interest in Bangladesh. The objective of this study is to mathematically confirm whether these fluctuations do have any immediate impact on the GDP. The methodology is simple and straightforward. The study is based on 20 years (1991 to 2010) of data on DGEN (main Stock Market Index of the country) and annual GDP Growth Rate. Based on these data, we conduct a regression analysis, in which the Stock Market Fluctuations (annual percentage changes in DGEN) is served as independent variable, and growth in real GDP is rolled as dependent variable. The result shows that, in Bangladesh, fluctuations of stock market in any particular year do not have any noticeable impact on the GDP of that same year. However, the possibility of lagged effects cannot be ruled out, but that is not analyzed in this study.