The dynamic relationship between stock market returns and macroeconomic variables: An empirical study from Bangladesh

Abstract

In this research paper, attempt has been made to explore the dynamic relationship between stock market and macroeconomic variables i.e. DSE index and three key macro-economic variables (Exchange rate, Industrial production in and Reserve), by using unit root stationary tests and Johansan co-integration test. Monthly data has been used from June, 2003 to June, 2015 for all the variables, like, DSE index, Exchange rate, Industrial production in and Reserve. Results showed that the variables contained a unit root and were integrated of order one. The vector error correction model (VECM) (Johansen (1991)) is utilized to determine the impact of selected macroeconomic variables on stock market. Empirical results show that the stock market and macroeconomics variables have no long-term equilibrium relationship.