Stock Prices and the Macro Economy in India


• Author(s): Amit Kundu • Published: December 2022
• Pages in paper: 26


This article studies the relationship between stock prices and the Indian macroeconomy assessed by the level of GDP. There are many different channels of influence between these two variables, channels which may function in either direction. There are also many hypotheses pertinent to these interrelationships. We concentrate on the empirical character of this link, which we analyse within the framework of a VAR/VEC model that allows for two-way interactions but is agnostic regarding the specific theoretical underpinnings, rather than overtly evaluating hypotheses. Using tests for stationarity and cointegration it is discovered that the relationship between stock prices and GDP is cointegrating over the long term. We estimate a VAR model and use variance decomposition. We find that there is strong evidence of long-run causality from the stock market to the economy but not vice versa. We also find modest evidence of a similar short-run effect. We rationalise our results in terms of the relatively small size of India’s stock market. It is found that Nifty 50 has strong influence on GDP but GDP does not have any influential effect on Nifty 50 in its forecast error variance. The DCC analysis indicates that there is no integration between GDP and Nifty 50 return in the short run or over long periods.

Register for personal access to all papers for just £47.99

To download papers you need a subscription to World Economics Journal.
Get access to the full 20 year archive of thousands of papers and abstracts.

Order online now for 1 years immediate access for 1 user via username/password.

You do not need a PayPal account to pay by card.

Institutional Subscriptions, Contact Us
Existing Subscriber Log-in

More Papers From This Author in World Economics:

GDP Growth in Bharat
Author: Amit Kundu

Countries should be mandated to purchase carbon credits for their shortfall in nationally determined contributions to the Paris Agreement. The carbon credit purchase quantity for each country should be scaled by a country’s gross national happiness. Governments should fund this carbon credit purchase through national carbon pricing. Mandating government carbon credit purchases will facilitate far-reaching emissions reductions, carbon removal at scale and combat global inequality.

Read Full Paper >