Role of Macroeconomic Variables on Stock Market in Bangladesh

Md. Abdullah-Al-Mamun, Md. Mamunur Rashid

Abstract:

Capital market plays a significant role in a country’s economical growth. Unfavorable movement of the macroeconomic factors will lead to a financial crisis of a country. The global financial crisis of (2007-2009) crashed the whole capital market and made the world economy vulnerable. Vulnerable security market will ruin the country’s economic growth. The systematic risk factors i.e. macroeconomics variables impact on the return on stock market as capital market is a macro factor &cannot operate ignoring this macro variable. Inflation, exchange rate, T-bill rate and saving rate were used as macroeconomic factor. In order to initiate the research multivariate regression model was used for data analysis. Time series data were used here. Empirical evidence from reviewing some papers revealed that there seems a strong relation between changing macroeconomic factors and influence on security market. Secondary monthly data was used here for regression analysis by initiating Johansen co-integration test, Vector error correction model for capturing long term relation. The study concluded that just four macroeconomic variables were not enough to illustrate the stock market behavior. Innovation accounting plays an import role to capture the short run shocks where cointegration equation examines the long run relations. Investors can be used this study to make rational judgment in investing the stock market of Bangladesh though different market reacts differently in their investing pattern. Consequently, in this study has revealed the role of changing selected macroeconomic factors on the security market of Bangladesh in long run and short run perspective.

Keywords:

Co-integration, CSE, DSE, Macroeconomic variables, Stock market

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