Impact of Macroeconomic Variables on Economic Performance: An Empirical Study of India and Sri Lanka
35 Pages Posted: 11 May 2011
Date Written: May 9, 2011
Macroeconomic variables (e.g. economic output, unemployment and employment, and inflation) play a vital role in the economic performance of any country. For the past three decades, evidence of key macroeconomic variables helping predict the time series of stock returns has accumulated in direct contradiction to the conclusions drawn by the Efficient Market Theory. The majority of research concentrates on the financial markets of the developed countries, which are efficient enough and do not suffer from the inefficiency problems found in less developed countries. Considering this matter, the subject of financial markets in developing countries still needs lengthy analysis and more research attention. This research studies the pattern of CPI, WPI, GDP, GNI and Rate of interest in India and Sri Lanka for the year 2002-2009 while also analyzing the impact of macro-economic variable on GDP growth in India vis-à-vis Sri Lanka. The econometrics tools (e.g. unit root test, Granger Causality Test, cointegration test, vector auto regression, Variance decomposition, and Variance Decomposition Analysis) have been used for the analysis purpose.
Keywords: macroeconomic variables, efficient market, stock returns, developing countries, VAR, unit root test
JEL Classification: G14, G15
Suggested Citation: Suggested Citation