*Associate Professor, Indian Institute of Forest Management (IIFM), Bhopal, Madhya Pradesh, India, ashutosh@iifm.ac.in
**Associate Professor, Indian Institute of Forest Management (IIFM), Bhopal, Madhya Pradesh, India, cvrs@iifm.ac.in
JEL Classification Codes: E44, C20
The present study examines the dynamic relationship between the various macroeconomic variables and the Indian stock markets. The macroeconomic variables included for analysis are gold, interest rate, oil prices, money supply (M3) and exchange rate while the BSE Sensex has been taken as a proxy of the stock prices performance. Monthly values of the variables and the index have been taken from April 2001 to July 2016. The dynamic relationship has been examined by applying the Johansen's cointegration test and the vector error correction model. The findings indicate that all the variables except oil prices have a significant long-term relationship with the stock prices. In the short run, the adjustment of stock prices to revert to equilibrium is quite slow, and the stock markets do not react in a significant way to get back to equilibrium.
Stock markets, Co-integration, Dynamic relationship, Vector-error correction model, Short run equilibrium, Stationarity
