Causal Relationship Between Selected Macro-Economic Variables And Stock Market: A Case Study For Bangladesh

Research Article
Mohammed JashimUddin
Macroeconomic Variables, Stock Prices, Unit Root Test, Granger Causality Test, Correlation matrix.

Establishing the relationship between stock prices and macroeconomic variables is very significant for formulating current economic stabilization policies. This paper investigates the causal relationship between three macroeconomic variables and stock prices of Bangladesh using unit root test and Granger causality test. This paper has tried to find out the relationship of selected macroeconomic variables, viz., inflation, money supply and exchange rate with the share price index of Bangladesh, using yearly data for the period 1988 to 2013. The result shows casual linkage between the stock prices with Exchange Rate except two other variables under consideration. In spite of good macroeconomic condition in sample period, no relationship with stock prices suggests that the market is not informatively efficient.