Investigating the Impact of selected Macroeconomic Variables on Indian Stock Market Index

Abstract

This paper investigates the impact of macroeconomic variables on the stock market index of India. The main aim is to investigate whether there is any causal relationship between stock indices and some of the key macroeconomic variables in India. For this purpose the techniques of ADF unit root tests, Johansen co-integration test and Granger Causality test have been applied between BSE SENSEX share price index and the macroeconomic variables, viz., Exchange rate(EXR), gold price(GP) and inflation(CPI). Monthly data for the period from July 2011 to July 2013 has been employed for this study. The results of this study reveal that exchange rates, inflation and gold price affect the stock prices. On the other hand, BSE SENSEX share price index influences exchange rates. The analysis shows that the capital market indices are showing dependence on economic variables.