Stock Market Performance and Macroeconomic Variables - Theory and Critical Review of Literature

International Business Journals, Issue 18, June 2015.

43 Pages Posted: 27 Nov 2015

See all articles by Arnav Kumar

Arnav Kumar

University of Delhi - Delhi School of Economics - Department of Commerce

CA Deepak

University of Delhi - Delhi School of Economics

Pardeep Singh

Department of Commerce

Date Written: June 1, 2015

Abstract

Relationship between stock market performance and macroeconomic variables has intrigued and is of pertinent importance to policy makers, regulators, academicians, researchers and investment community. This paper presents a comprehensive theoretical framework underpinning this relationship and also provides an extensive critical analysis of existing literature on the subject.

Theory suggests that stock market performance has positive relationship with GDP, Money Supply, Industrial Production, Foreign Exchange Reserves, Balance of Trade, Net FPI and FDI Inflows. It is negatively related with Inflation, Interest Rate, Gold Price and Oil Prices. Relationship of stock market with exchange rate and fiscal deficit is not clear.

Critical examination of literature on various bases suggests that while this relationship is clearly established for developed markets, there is no unanimity for this relationship regarding emerging markets. Also, while some prominent macroeconomic variables which affect stock market performance can be identified, an exhaustive list of macroeconomic variables cannot be drawn. There has been a shift in econometric methods applied from basic tools to more advanced second generation financial econometric techniques

Future researches should focus on examining this relationship for emerging markets, consider a comprehensive set of macroeconomic and stock market performance variables, take a fairly long study period, apply modern financial econometric techniques, explore this relation at sectoral level and incorporate impact of recent global financial crisis in their study.

Keywords: Stock Market Performance, Macroeconomic Variables, Financial Econometric Techniques, Critical Literature Review, Scope for Further Research

JEL Classification: B26, D53, E44, G14

Suggested Citation

Kumar, Arnav and Deepak, CA and Singh, Pardeep, Stock Market Performance and Macroeconomic Variables - Theory and Critical Review of Literature (June 1, 2015). International Business Journals, Issue 18, June 2015.. Available at SSRN: https://ssrn.com/abstract=2695824

Arnav Kumar (Contact Author)

University of Delhi - Delhi School of Economics - Department of Commerce ( email )

New Delhi, New Delhi 110007
India

CA Deepak

University of Delhi - Delhi School of Economics ( email )

G.T. Road,
Shahdara
Delhi-110007, Delhi 110032
India

Pardeep Singh

Department of Commerce ( email )

Delhi School of Economics
University of Delhi
Delhi, New Delhi 110 007
India

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