Open AccessImpact of Macroeconomic Variables on Small, Mid and Large Cap Stocks: A Comparative Study of India Using VAR Approach
Author(s) -
Shukrant Jagotra,
Amanpreet Singh
Publication year - 2018
Publication title -
mudra : journal of finance and accounting
Language(s) - English
Resource type - Journals
eISSN - 2395-2598
pISSN - 2347-4467
DOI - 10.17492/mudra.v5i01.13038
Subject(s) - vector autoregression , exchange rate , granger causality , economics , econometrics , money supply , index (typography) , industrial production index , stock market index , monetary economics , augmented dickey–fuller test , stock market , interest rate , macroeconomics , production (economics) , geography , computer science , context (archaeology) , archaeology , world wide web
The study examines and compares the relationships between Indian stock market indices (BSE Small, Mid and Large Cap) and five macroeconomic variables (Index of Industrial Production, Wholesale Price Index, Money Supply M3, Exchange Rate and Call Money Rate) over the period April 2006 to March 2017. The study applies Augmented-Dickey Fuller test to test the data stationarity. The analysis reveals that data is neither found to be stationary at level nor co-integrated. Hence, the study applies unrestricted Vector Autoregression (VAR) model to establish the short-run relationships. It is observed that macroeconomic variables significantly impact stock prices depending upon the type of index. As per the Granger Causality test, the study found unidirectional relationship from Exchange Rate to BSE Small Cap; unidirectional relationship from Exchange Rate to BSE Mid Cap and BSE Mid Cap towards IIP; bidirectional relationship between BSE Large Cap and Exchange Rate whereas unidirectional relationship from BSE Large Cap to IIP and from Money Supply M3 towards BSE Large Cap.