Abstract
The aim of the study is to examine the impact of macroeconomic variables on stock market performance in Sri Lanka. This study uses yearly data collected from the annual reports of the Central Bank of Sri Lanka for the period from 1990 to 2019. Macroeconomic variables used in this study are interest rate, inflation rate, real exchange rate, and money supply while All Share Price Index (ASPI) is used to measure the stock market performance. Inflation rate and interest rate are found stationary at zero levels while exchange rate, money supply and stock market performance are found stationary at levels one in the Augmented Dickey-Fuller (ADF) test. No serial correlation is found among variables by employing Breusch-Godfrey LM Test. The Auto-Regressive Distributed Lag (ARDL) bounds test is used to test the long-run and short-run relationships between variables. The empirical result reveals that there is a negative and significant impact of interest rate and inflation rate on stock market performance while exchange rate and money supply do not hold any significant impact on stock market performance in the long run. Further, it is found that there is a negative and significant impact of interest rate on stock market performance in the short run.
Highlights
The dependent variable in this analysis was stock market performance, which was determined by the All Share Price Index (ASPI), while the independent variables were real exchange rate, interest rate, inflation, and money supply
This study intends to investigate the impact of selected macroeconomic variables on stock market performance in Sri Lanka
In the case of the Sri Lankan stock market equation, the value of ECT (0.4121) shows that each year about 41% of the difference between the real and equilibrium value of stock market result is corrected
Summary
The stock market is one of the elements of the financial market. It is the place where ownership of investible assets can be bought and sold by investors. A stock market in a country is functioning for mobilizing national and international capital between various parties It leads to the growth of industries and commerce in a particular country. The health of a stock market is one of the major indicators of the economic position of such a country because, if an economy is growing, the output will be increasing, and most firms should be experiencing increased profitability. It will make the company shares more attractive and they can give higher dividends to shareholders. A long period of economic growth will tend to benefit shares
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