Impact Of Macroeconomic Factors On Stock Market Return - A Case Study Of India

Abstract

The decision .to buy or sell or to hold shares depends upon the numerous factors. The various studies have indicated that these factors may be either macroeconomic or company specific variables. The present study selected the following variables: Treasury Bills yield, Exchange Rate, Foreign Institutional Investments, Index of Industrial Production, Inflation rate, Risk in Indian stock market, risk and return in US stock market to check the association with average daily return of Indian stock market. To determine the impact of these factors on return of the Indian stock market, daily' data was taken for a period of 12 years from April, 2003 to March, 2015. Econometric analysis was carried out to bring the relation between stock return and these variables. However before making the econometric analysis all the time series used for analysis were checked for their stationarity. ADF test was applied to examine validity of unit root test. For analyzing the return on the Bombay Stock Exchange, Autoregressive Moving Average (ARMA) model has been used as AR.MA (p, q) is a commonly used for forecasting system of interrelated time series. Regarding variable-wise impact on return of ESE Sensex, it is revealed by the study that the variables FIIN, RS&P, S&P 500 return and USTBR have positive and significant values of regression coefficients which imply that these four factors affect the return of Jndian stock market significantly and positively. The analysis further offers that there is no effect of preceding day return on the current day stock return.