The Relationship between Macro-Economic Variables and Stock Exchange Prices: A Case Study in Dhaka Stock Exchange (DSE) in Bangladesh

Abstract

Macroeconomic indicators, such as money supply, inflation, exchange rate, trade balance, indicators of industrial production, are the basis for assessing the processes of growth and development of the country. Peculiarities of functioning of the exchange market also play an important role in the analysis of the country’s development. Disclosure of the main purpose of the study involves the study of the relationship between macroeconomic indicators and stock prices on the Dhaka stock exchange (DSE) in Bangladesh. Methodological support of the work includes statistical methods (Granger causality test and Dickie fuller test), which allow to determine the causal relationship between macroeconomic indicators and prices on the stock exchange of Bangladesh. Empirical estimates of the study showed the absence of a causal relationship between macroeconomic indicators (money supply, industrial production index, exchange rate, inflation and trade balance) and stock prices in the form of a General index of all shares on the DAX stock exchange. The obtained results indicate that the macroeconomic evaluation cannot be used to predict prices on the stock exchanges in Bangladesh. The study postulates that the results of exchange activity also do not reflect the peculiarities of macroeconomic movement in the country. The author substantiates recommendations for regulatory authorities in terms of the formation of a set of measures to ensure the claim correlation of macroeconomic indicators of the country’s development with prices on the stock market. It is stated that the results of the study will allow the government to take active measures to: overcome in the future the pressure of international trade, adjust the appropriate monitoring and fiscal policy, reduce any possible negative impact on the country’s economy in the context of its further development. Keywords: macroeconomic variables, money supply, exchange rate, inflation, prices on stock exchanges, Dhaka stock exchange, Bangladesh.