Home > bal > AABFJ > Vol. 12 (2018) > Iss. 2
Abstract
The economic growth of India has positioned it as one of the rapidly growing economies the world over and it is expected to be one of the top three economies globally over the next decade. Contrary to a slowdown in the earnings of Indian corporates due to excess existing capacity and the inability of banks to lend, the stock market ie Bombay Stock Exchange has performed well. The objective of the present research is to investigate the link that exists, if any, between BSE Sensex and macroeconomic variables such as Index of Industrial Production (IIP), inflation, the rate of interest, the price of gold, rate of exchange, FII and supply of money for the period April 1999-March 2017. The study also seeks to determine the strength of the link between the independent parameters and the dependent parameter ie BSE Sensex in the short run and long run based on the test of Johansen Cointegration, Granger Causality, and the Vector Error Correction mechanism. The analysis through the Vector Error Correction Model (VECM) confirms that there exists a long-run causality between the macroeconomic variables of Index of Industrial Production (IIP), inflation, interest rates, gold prices, exchange rate, foreign institutional investment, money supply and BSE Sensex. It establishes that there does exist a short run causality between Inflation and BSE Sensex and Money Supply and BSE Sensex. The results importantly show that BSE Sensex causes changes in the exchange rate and money supply, FII, gold prices and IIP.
