Stock Market Index and Macro Economic Variables in India: An Empirical Relationship
The present study is an attempt to examine the inter linkages between stock market index and macro economic variables namely weighted average lending rate, net inflows of foreign direct investment, net investments by foreign institutional investors, exchange rate of Indian Rupee vis a vis US$, ratio of current account balance to gross domestic product over the time period 1991 to 2016 for India. Johansen cointegration test's results have indicated that at least four cointegrating vectors exist among stock market index and macroeconomic variables. The study reveals existence of long run positive relation between stock market index and macroeconomic variables exchange rate, interest rate, foreign direct investments and net foreign institutional investments. However, deficits in current account have shown long run negative relation with stock market index. The results of Granger causality indicate that unidirectional causality runs from stock market index to exchange rate, foreign direct investments and foreign institutional investments.