An Empirical Analysis of the Relationship between Monetary Policy Stance and Stock Price in Bangladesh

Md. Sajib Hossain, Md. Amzad Hossain and Shabnaz Amin
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Md. Sajib Hossain: Department of Finance, University of Dhaka
Md. Amzad Hossain: Department of Economics, University of Dhaka
Shabnaz Amin: Department of Finance, University of Dhaka

Bangladesh Development Studies, 2016, vol. 39, issue 1-2, 27-57

Abstract: This paper investigates the empirical relationship between the monetary stance and stock market performance of Bangladesh using monthly data from January 2001 to December 2013. The empirical investigation was conducted using autoregressive distributed lag (ARDL) model consisting of five alternative measures of monetary indicators - 91 day T-bill rate, reserve money, broad money, call money rate and weighted average deposit rate and DSE General Index (DGEN) for stock market performance. In the case of using 91 day Treasury bill (T-bill) or call money rate as monetary indicators, a long-run co-integration relationship between DGEN, T-bill rate, CPI and exchange rate is found. However, in the case of broad money, reserve money and weighted average deposit rate, no long-run co-integration is found. Overall, this paper suggests that stock market valuation level is affected by monetary conditions.

Keywords: Monetary Policy; Stock Price; ARDL Model; Bangladesh (search for similar items in EconPapers)
JEL-codes: B26 C12 C22 C32 C58 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ris:badest:0793

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