The influence of macroeconomic variables on Indian stock markets – An empirical study

This study has endeavoured to find out the relationships between BSE SENSEX and seven key macroeconomic variables, both in the long-run and short-run, by using descriptive statistics, correlation test results, ADF tests, Johansen and Juselius's cointegration test and Granger causality test. Monthly data has been used from April, 2007 to March, 2012 for all the variables, i.e., BSE SENSEX, index of industrial production, wholesale price index, crude oil prices, gold prices, money supply, exchange rate and foreign exchange reserve. ADF results showed that all the variables has contained a unit root and are integrated of order one. Johansen and Juselius's cointegration test pointed out at least one cointegration vector and long run relationships between BSE SENSEX with index of industrial production, gold prices, money supply and foreign exchange reserve. Granger causality test was then employed. The Granger causality test has found some short-run unilateral or bilateral causal relationships between BSE SENSEX with the macroeconomic variables.