Title : | Macroeconomic factors and stock market return in Nepal | Material Type: | printed text | Authors: | Dinesh Adhikari, Author | Publication Date: | 2016 | Pagination: | 111p. | Size: | GRP/Thesis | Accompanying material: | 8/B | Languages : | English | Descriptors: | Macroeconomics
| Class number: | 332.632 | Abstract: | The development of the capital markets is crucial for the development of a real sector in the system and the wellbeing of any economy (Vejzagle and Zarafat, 2013). The stock market is the centre of a network of a transaction where buyers and sellers of securities meet at a specific price. Stock market plays a key role in the mobilisation of capital in any countries, leading to the growth of industry and commerce of the country (Talla, 2013). Stock markets are said to reflect the health of the country’s economy. At the same time, major economic indicators determine stock market movements largely (Sireesha, 2013). The capital market is considered as a barometer of an economy. Many factors can be a signal to the stock market participant to expect higher or lower returns when investing in stock, and one of these factors are macroeconomic variables. The changes in economic variables can significantly influence stock price returns. Therefore, there is a causal relationship between macroeconomic variables and stock market return (Ozbay, 2009).
The nexus between macroeconomic variables and stock market performancehas long been studied, but the direction of causality remained the subject of controversy. Some studies concluded that there is bidirectional causality between macroeconomic variables, while other examined the unidirectional causality. The analysis of macroeconomic variables and stock performance is of significant interest to many studies, including Nkoro and Uko (2013), Naik and Padhi (2012), Oseni and Nwosa (2011), (Chowdhury and Rahman (2004), Wondgabgpo and Sharma (2002), Ray and Vani (2003), Gan et al (2006), Basci and Karaca (2013), Gay (2008), Chinzara (2010), Naik (2013), and Sireesha (2013). All these studies attempted to identify the relationship between macroeconomic variables and stock market return.
In the context of Nepal, Phuyal (2016) found long run causality between macroeconomic variables and stock market return. In addition, Rana (2013) concluded that there is strong unidirectional causality between GDP to market returns and there is no causality running from stock market rerun to inflation and inflation to stock market performance. Joshi and Bhattarai (2009), on the other hand, concluded that there is unidirectional short run causality between inflation to stock market return and the reverse causality in the long-run. Similarly, the study found long-run causality from stock index to an interest rate with the absence of short-run causality. Similarly, Regmi (2012) suggested that stock market return has significantly contributed to the GDP on Nepal.
The major objective of this study is to examine the relationship between macroeconomic variables and stock market return in Nepal. In addition, this study is conducted to ascertain the cointegration between macroeconomic and stock market return variables. The major sources of data are World Development Indicators of World Bank, Quarterly Economic Bulletin published by Nepal Rastra Bank and an Economic Survey published by Ministry of Finance for the period of 1994 to 2015. The stock index and market capitalisation havebeen taken as a proxy for stock market return. The selected macroeconomic variables are gross domestic product per capita, interest rate, grossdomestic saving as a percentage of GDP, broad money supply as a percentage of GDP, inflation rate and nominal exchange rate.
The augmented dickey fuller test reveals that the stock market variables are stationary at the level, while macroeconomic variables are stationary at first difference. The ARDL bound test shows that there is cointegration relationship between stock market return and macroeconomic variables. Money supply is positively related to stock market return in thelong run as well as in the short run. This indicates that higher the money supply in the market, higher would be the stock market returnin the short run as well in the long run. However, the beta coefficient of the exchange rate is negative in the shortrun as well as in the long run, suggesting higher the exchange rate, lower would be the stock market return. The result further revealed that the beta coefficient of interest is negative and significance in the long run, thus, suggests that higher the interest rate in the Nepalese market, lower would be the stock market returnin the long run. Further, the result shows that gross domestic saving does not explain the stock market return in the case of Nepal.
Further, the study reveals that the macroeconomic variables play an important role in determining the stock market return in the Nepalese market. This study reveals that money supply and the exchange rate has greater significance in determining stock market return. Likewise, inflation is found to be insignificance in the long run. Similarly, Granger causality shows that gross domestic product per capita and money supply has bidirectional causality with stock market return. Therefore, this study suggests that the policy makers need to take the macroeconomic variables into consideration when formulating financial and economic policies and strategies. Similarly, the concerned bodies should give more emphasis on the economic policies those enhance the speed of the mobilisation of the savings in the financial market to achieve the higher returns from the stock market.
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Macroeconomic factors and stock market return in Nepal [printed text] / Dinesh Adhikari, Author . - 2016 . - 111p. ; GRP/Thesis + 8/B. Languages : English Descriptors: | Macroeconomics
| Class number: | 332.632 | Abstract: | The development of the capital markets is crucial for the development of a real sector in the system and the wellbeing of any economy (Vejzagle and Zarafat, 2013). The stock market is the centre of a network of a transaction where buyers and sellers of securities meet at a specific price. Stock market plays a key role in the mobilisation of capital in any countries, leading to the growth of industry and commerce of the country (Talla, 2013). Stock markets are said to reflect the health of the country’s economy. At the same time, major economic indicators determine stock market movements largely (Sireesha, 2013). The capital market is considered as a barometer of an economy. Many factors can be a signal to the stock market participant to expect higher or lower returns when investing in stock, and one of these factors are macroeconomic variables. The changes in economic variables can significantly influence stock price returns. Therefore, there is a causal relationship between macroeconomic variables and stock market return (Ozbay, 2009).
The nexus between macroeconomic variables and stock market performancehas long been studied, but the direction of causality remained the subject of controversy. Some studies concluded that there is bidirectional causality between macroeconomic variables, while other examined the unidirectional causality. The analysis of macroeconomic variables and stock performance is of significant interest to many studies, including Nkoro and Uko (2013), Naik and Padhi (2012), Oseni and Nwosa (2011), (Chowdhury and Rahman (2004), Wondgabgpo and Sharma (2002), Ray and Vani (2003), Gan et al (2006), Basci and Karaca (2013), Gay (2008), Chinzara (2010), Naik (2013), and Sireesha (2013). All these studies attempted to identify the relationship between macroeconomic variables and stock market return.
In the context of Nepal, Phuyal (2016) found long run causality between macroeconomic variables and stock market return. In addition, Rana (2013) concluded that there is strong unidirectional causality between GDP to market returns and there is no causality running from stock market rerun to inflation and inflation to stock market performance. Joshi and Bhattarai (2009), on the other hand, concluded that there is unidirectional short run causality between inflation to stock market return and the reverse causality in the long-run. Similarly, the study found long-run causality from stock index to an interest rate with the absence of short-run causality. Similarly, Regmi (2012) suggested that stock market return has significantly contributed to the GDP on Nepal.
The major objective of this study is to examine the relationship between macroeconomic variables and stock market return in Nepal. In addition, this study is conducted to ascertain the cointegration between macroeconomic and stock market return variables. The major sources of data are World Development Indicators of World Bank, Quarterly Economic Bulletin published by Nepal Rastra Bank and an Economic Survey published by Ministry of Finance for the period of 1994 to 2015. The stock index and market capitalisation havebeen taken as a proxy for stock market return. The selected macroeconomic variables are gross domestic product per capita, interest rate, grossdomestic saving as a percentage of GDP, broad money supply as a percentage of GDP, inflation rate and nominal exchange rate.
The augmented dickey fuller test reveals that the stock market variables are stationary at the level, while macroeconomic variables are stationary at first difference. The ARDL bound test shows that there is cointegration relationship between stock market return and macroeconomic variables. Money supply is positively related to stock market return in thelong run as well as in the short run. This indicates that higher the money supply in the market, higher would be the stock market returnin the short run as well in the long run. However, the beta coefficient of the exchange rate is negative in the shortrun as well as in the long run, suggesting higher the exchange rate, lower would be the stock market return. The result further revealed that the beta coefficient of interest is negative and significance in the long run, thus, suggests that higher the interest rate in the Nepalese market, lower would be the stock market returnin the long run. Further, the result shows that gross domestic saving does not explain the stock market return in the case of Nepal.
Further, the study reveals that the macroeconomic variables play an important role in determining the stock market return in the Nepalese market. This study reveals that money supply and the exchange rate has greater significance in determining stock market return. Likewise, inflation is found to be insignificance in the long run. Similarly, Granger causality shows that gross domestic product per capita and money supply has bidirectional causality with stock market return. Therefore, this study suggests that the policy makers need to take the macroeconomic variables into consideration when formulating financial and economic policies and strategies. Similarly, the concerned bodies should give more emphasis on the economic policies those enhance the speed of the mobilisation of the savings in the financial market to achieve the higher returns from the stock market.
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