Long Run and Short Run Relationships Between Sensex Macro Economic Variables

Abstract

This study delves into the intricate relationships between the Sensex, India's premier stock market index, and key macroeconomic variables, highlighting both long-term and short-term interactions. Macroeconomic variables such as GDP, inflation, interest rates, and foreign exchange reserves are analysed to understand their impact on the Sensex. Additionally, the study considers microeconomic variables, providing a comprehensive view of economic dynamics. By utilizing econometric methods like Vector Auto regression (VAR) and Johansen co integration tests, the research aims to distinguish between immediate economic shocks and sustained economic trends affecting the Sensex. The investigation focuses on Aditya Birla Money as a case study to explore financial market dynamics. The identified research gap emphasizes the need to consider the influence of emerging digital financial assets and fin tech innovations on traditional macroeconomic variables and market stability. By addressing this gap, the study aims to provide a deeper understanding of how technological advancements and digital transformation interact with established economic indicators to affect financial markets. The primary objectives include examining the long-term and short-term relationships between the Sensex and key macroeconomic indicators, identifying the most significant factors influencing Sensex performance, and assessing the predictive power of these variables. Data collection involves both primary sources, such as interviews with financial experts, and secondary sources, including financial databases. The study's findings are expected to offer valuable insights for investors, policymakers, and financial analysts, aiding in informed decision-making and enhancing strategies for risk management in the ever-evolving economic landscape.