Title : | Macroeconomic determinants of stock market development: evidence from Nepal | Material Type: | printed text | Authors: | Bhabin Limbu, Author | Publication Date: | 2016 | Pagination: | 102p. | Size: | GRP/Thesis | Accompanying material: | 7/B | Languages : | English | Descriptors: | Macroeconomics
| Class number: | 332.632 | Abstract: | Stock market is one of the most important sources for companies to raise fund. This allows business to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. Stock market plays a major role in financial intermediation in both developed and developing countries. The stock market avail long-term capital to the listed firms by pooling funds from different investors and allow them to expand business by offering alternative investment avenue to put their surplus funds (Ologunde et al., 2006). The development of the stock market critically depends on the accessibility for investors and firms to access to the market. A well-developed stock market should provide the opportunity for investors and participants to allocate to productive investment efficiently. A more efficient stock market should have low degree of co-movement of individual stock with the market. Also, to be efficient, stock price should have high frequent price movement as reflected in low transaction cost (Sukcharoensin and Sukcharoensin, 2013).
The major purpose of the study is to analyze the impact of macro-economic variables on Nepalese stock market. The specific objectives of the study is to examine the structure and pattern ofstock market index, inflation rate, gross domestic product growth rate, interest rate, remittance inflows, foreign direct investment, broad money supply to gross domestic product and domestic credit to private sectorthe macro-economic factors. Similarly to determine the majormacroeconomic factors affecting to the development of NEPSE Index.
This study is based on descriptive and causal-comparative research designs. The descriptive research design has been adopted to undertake fact-finding operation searching for adequate information about the impact of macroeconomic determinates on stock market development in Nepal. The study is based on the secondary data which were gathered for the time period of 1995 to 2014, leading to the total of 20 observations. The secondary data have been obtained from the Economic Survey published by Ministry of Finance and World Bank Statistics published by World Bank. The pooled cross-sectional data analysis has been undertaken in the study. The data are collected forinflation, interest rate, foreign direct investment, broad money supply, domestic credit to private sector, remittance inflows and gross domestic product growth rate.
The result found that inflation and gross domestic product growth rate are positively correlated to NEPSE Index. Similarly, remittance inflows, broad money supply to gross domestic product and domestic credit to private sector to gross domestic product are also positively correlated to NEPSE Index. However, interest rate (364 days T-bill rate) and foreign direct investment are negatively correlated to the NEPSE Index.The result showed that inflation, gross domestic product growth rate and remittance are positively correlated to market capitalization ratio.Similarly, foreign direct investment, broad money supply to gross domestic product and domestic credit to private sector to gross domestic product are positively correlated tomarket capitalization ratio. However, interest rate (364 days T-bill rate) is negatively correlated to themarket capitalization ratio.Likewise, inflation and gross domestic product growth rate are positively correlated to stock market liquidity. Similarly, remittance inflows, broad money supply to gross domestic product and domestic credit to private sector to gross domestic product are also positively correlated tostock market liquidity.However, interest rate (364 days T-bill rate) and foreign direct investment are negatively correlated to thestock market liquidity
The results revealed that the beta coefficients for inflation, gross domestic product growth rate, remittance inflows, broad money supply to GDP and domestic credit to private sectors are positive with NEPSE Index.However, the beta coefficients are significant for inflation and gross domestic product growth rate are not significant at level of 5 percent.The beta coefficients for interest rate and foreign direct investment are negative with NEPSE Index. The beta coefficient for interest rate is significant at 5 percent level of significance.
The major conclusion of this study is that the remittance inflows, broad money supply (M2) to gross domestic product and domestic credit to private sectors to gross domestic product (GDP) are the major factors affecting the development of stock market in Nepal.The study also concludes that interest rate has a negative impact on the stock market index. It indicates thathigher the interest rate (364 days t-bill rate), lower would be the stock market development.
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Macroeconomic determinants of stock market development: evidence from Nepal [printed text] / Bhabin Limbu, Author . - 2016 . - 102p. ; GRP/Thesis + 7/B. Languages : English Descriptors: | Macroeconomics
| Class number: | 332.632 | Abstract: | Stock market is one of the most important sources for companies to raise fund. This allows business to be publicly traded, or raise additional capital for expansion by selling shares of ownership of the company in a public market. Stock market plays a major role in financial intermediation in both developed and developing countries. The stock market avail long-term capital to the listed firms by pooling funds from different investors and allow them to expand business by offering alternative investment avenue to put their surplus funds (Ologunde et al., 2006). The development of the stock market critically depends on the accessibility for investors and firms to access to the market. A well-developed stock market should provide the opportunity for investors and participants to allocate to productive investment efficiently. A more efficient stock market should have low degree of co-movement of individual stock with the market. Also, to be efficient, stock price should have high frequent price movement as reflected in low transaction cost (Sukcharoensin and Sukcharoensin, 2013).
The major purpose of the study is to analyze the impact of macro-economic variables on Nepalese stock market. The specific objectives of the study is to examine the structure and pattern ofstock market index, inflation rate, gross domestic product growth rate, interest rate, remittance inflows, foreign direct investment, broad money supply to gross domestic product and domestic credit to private sectorthe macro-economic factors. Similarly to determine the majormacroeconomic factors affecting to the development of NEPSE Index.
This study is based on descriptive and causal-comparative research designs. The descriptive research design has been adopted to undertake fact-finding operation searching for adequate information about the impact of macroeconomic determinates on stock market development in Nepal. The study is based on the secondary data which were gathered for the time period of 1995 to 2014, leading to the total of 20 observations. The secondary data have been obtained from the Economic Survey published by Ministry of Finance and World Bank Statistics published by World Bank. The pooled cross-sectional data analysis has been undertaken in the study. The data are collected forinflation, interest rate, foreign direct investment, broad money supply, domestic credit to private sector, remittance inflows and gross domestic product growth rate.
The result found that inflation and gross domestic product growth rate are positively correlated to NEPSE Index. Similarly, remittance inflows, broad money supply to gross domestic product and domestic credit to private sector to gross domestic product are also positively correlated to NEPSE Index. However, interest rate (364 days T-bill rate) and foreign direct investment are negatively correlated to the NEPSE Index.The result showed that inflation, gross domestic product growth rate and remittance are positively correlated to market capitalization ratio.Similarly, foreign direct investment, broad money supply to gross domestic product and domestic credit to private sector to gross domestic product are positively correlated tomarket capitalization ratio. However, interest rate (364 days T-bill rate) is negatively correlated to themarket capitalization ratio.Likewise, inflation and gross domestic product growth rate are positively correlated to stock market liquidity. Similarly, remittance inflows, broad money supply to gross domestic product and domestic credit to private sector to gross domestic product are also positively correlated tostock market liquidity.However, interest rate (364 days T-bill rate) and foreign direct investment are negatively correlated to thestock market liquidity
The results revealed that the beta coefficients for inflation, gross domestic product growth rate, remittance inflows, broad money supply to GDP and domestic credit to private sectors are positive with NEPSE Index.However, the beta coefficients are significant for inflation and gross domestic product growth rate are not significant at level of 5 percent.The beta coefficients for interest rate and foreign direct investment are negative with NEPSE Index. The beta coefficient for interest rate is significant at 5 percent level of significance.
The major conclusion of this study is that the remittance inflows, broad money supply (M2) to gross domestic product and domestic credit to private sectors to gross domestic product (GDP) are the major factors affecting the development of stock market in Nepal.The study also concludes that interest rate has a negative impact on the stock market index. It indicates thathigher the interest rate (364 days t-bill rate), lower would be the stock market development.
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