Open Access
Subscription Access
Open Access
Subscription Access
Share Prices, Macroeconomic Variables in India
Subscribe/Renew Journal
The present paper is an attempt to examine the causal relationships between the share price index and industrial production for India in a multivariate vector error correction model which involves certain other crucial macroeconomic variables namely money supply, credit to the private sector, exchange rate, wholesale price index, and money market rate for the reason of right and robust model specification. The purpose is to highlight the relationship between economic growth and stock market especially in terms of stock prices. The present study thus proceeds with a single point investigative agenda what is the relationship between the health of the real economy and the health of the stock market? Does a rally in share prices reflect better health of the economy or is it the pink economic health that causes share prices to rise? The present study reports causality running from economic growth proxied by industrial production to share price index and not the other way round.
Keywords
Share Price Index, Industrial Production, Macroeconomic Variables, Cointegartion and Multivariate Vector Error Correction Model
User
Information
- Aivazian, V. A. (1998), Microeconomic Elements and Perspectives from Finance Theory, in Fanelli, J. M. and Medhora, R. (eds.), Financial Reform in Developing Countries, International Development Research Centre, Ottawa, Canada.
- Chen, N. F., Roll, R. and Ross, S. A. (1986), Economic Forces and the Stock Market, Journal of Business, 59: 383-403.
- Cheung, Y. W. and Ng. L. K. (1998), International Evidence on the Stock Market and Aggregate Economic Activity, Journal of Empirical Finance, 5: 281-96.
- Galbraith, J. K. (1955), The Great Crash, Penguin Books.
- Gjerde, O. and Saettem, F. (1999), Causal Relations among Stock Returns and Macroeconomic Variables in a Small, Open Economy, Journal of International Financial Markets, Institutions and Money, vol. 9.
- Granger, C. W. J. (1988), Some Recent Developments in a Concept of Causality, Journal of Econometrics, 39:199-211.
- Groenewold, N. (2004). Fundamental Share Prices and Aggregate Real Output, Applied Financial Economics, 14: 651-661.
- Hondroyiannis, G. and Papapetrou, E. (2001), Macroeconomic Influences on the Stock Market, Journal of Economics and Finance, 25(1): 33-49.
- Keynes, J. M. (1936), The General Theory of Employment, Interest and Money, Macmillan, London.
- Lee, B. (1992), Causal Relationships Among Stock Returns, Interest Rates, Real Activity, and Inflation. Journal of Finance, 38: 1591-1603.
- Naka, Mukherjee and Tufte, (2001), Microeconomic Variables and the Performance of the Indian Stock Market, University of New Orleans, USA.
- Pethe, Abhay and Karnik, Ajit (2000), Do Indian Stock Markets Matter? Stock Market Indices and Macro-Economic Variables, Economic and Political Weekly, 35(5): 349-356.
- Shah, A. and Thomas, S. (1997), Securities Market towards Greater Efficiency, in Parikh, K. S. (Eds.), Indian Development Report, OUP
- Sims, C. A., Stock, J. H. and Watson, M. W. (1990), Inference in Linear Time Series Models with Some Unit Roots, Econometrica, 58: 113-44.
- Toda, H. Y. and Philips, C. B. (1993), Vector Autoregression and Causality, Econometrica, 61(6): 1367-1393.
Abstract Views: 239
PDF Views: 1