An Empirical Analysis of Causal Relationship between Stock Market and Macroeconomic Variables in India
نویسنده
چکیده
The present paper is aimed at studying the nature of the causal relationship between stock prices and macroeconomic variables in India, if any such relationship exists. For this purpose the techniques of unit– root tests, cointegration and the Granger causality test have been applied between the NSE Index ‘Nifty’ and the macroeconomic variables, viz., Real effective economic rate (REER), Foreign Exchange Reserve (FER), and Balance of Trade (BoT), Foreign Direct Investment (FDI), Index of industrial production (IIP), Wholesale price index (WPI) using monthly data for the period from 1 April 2006 to 31 March 2010 have been studied. The major findings of the study are (i) there is no co integration between Nifty and all other variables except Wholesale price index (WPI) as per Johansen Co integration test. Therefore causal relationship between such macro economic variables having no co integration with nifty is not established. (ii) Nifty does not Granger Cause WPI and WPI also does not Granger Cause Nifty.
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