Causal Relationship between Stock Market and Macroeconomic Variables: Indian Evidence

Subrata Roy ()
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Subrata Roy: Mahatma Gandhi Central University

EuroEconomica, 2020, issue 3(39), 211-231

Abstract: Co-integration and causality are now recognised as the important modelling techniques for investigate the behaviour of macroeconomic variables. This study is conducted based on the above two techniques under VAR environment by considering annual data over a period from 1st April 1979 to 31st March 2020. The macroeconomic variables become stationary after first difference based on ADF and PP tests and integrated in the same order with optimum lag order of one. According to the Johansen cointegration test, three co-integrated equations are found which indicates presence of long-run equilibrium relationships and later confirmed by the VECM analysis when BSE is considered as the dependent variable. Even if, the evidence of short-run bilateral causality is observed between import and GDP and presence of uni-directional Granger causality is also seen from export to import.

Keywords: Co-integration; VECM; Causality; GDP; FDI (search for similar items in EconPapers)
Date: 2020
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