Open AccessAN IMPACT OF INFLATION AND EXCHANGE RATE ON STOCK RETURNS: EVIDENCE FROM INDIA
Author(s) -
Manpreet Kaur
Publication year - 2017
Publication title -
scholarly research journal for interdisciplinary studies
Language(s) - English
Resource type - Journals
eISSN - 2319-4766
pISSN - 2278-8808
DOI - 10.21922/srjis.v4i37.10524
Subject(s) - multicollinearity , econometrics , variance inflation factor , multivariate statistics , economics , inflation (cosmology) , exchange rate , stock (firearms) , stock exchange , regression analysis , variables , stock market , statistics , mathematics , monetary economics , geography , finance , physics , context (archaeology) , archaeology , theoretical physics
The study investigates the existence of relationship between Indian stock market and two macro economic variables namely, inflation and exchange rate. It covers a data period from April 2011 to March 2017. Multivariate Regression Model has been employed to investigate the relationship between BSE Sensex returns as dependent variable, and macro economic variables namely inflation (CPI) and exchange rate (USD- INR) as independent variables. Multicollinearity between independent variables has been tested by calculating Variance Inflation Factor and Tolerance statistics. Both the tests paved the way for application of multivariate regression as multicollinearity among independent variables is not found. The Results of multivariate regression show evidence of positive significant relationship between inflation and stock returns and insignificant relationship between exchange rate and stock returns in India. The findings suggest that Indian Stock Market is driven by inflation.