Macroeconomic Determinants of Stock Market Prices in Nepal

2020 ◽  
Vol 2 (1) ◽  
pp. 56-65
Author(s):  
Bhim Prasad Panta
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Developing Economies ◽  
Annual Data ◽  
Economic Variables ◽  
Market Prices ◽  
Ardl Model ◽  
Long Run

Background: Stock market plays a crucial role in the financial system of a country. It can be viewed as a channel through which resources are properly channelized. It enables the governments and industry to raise long-term capital for financing new projects. The stock markets of developing economies are likely to be sensitive to various macro-economic factors such as GDP, imports, exports, exchange rates etc., when there is high demand on financial products, as a constituent of financial market, ultimately stock market needs to develop. Many factors can be a signal to stock market participants to expect a higher or lower return when investing in stock and one of these factors are macroeconomic variables and thus, macro-economic variables tend to effect on stock market development. Objective: This study examines the linkage between stock market prices (NEPSE index) and five macro-economic variables, namely; real GDP, broad money supply, interest rate, inflation, and exchange rate using ARDL model and to explain the behavior of the Nepal Stock Exchange Index. Methods: The ECM which is delivered from ARDL model through simple linear transformation to integrate short run adjustments with long run equilibrium without losing long run information. The analysis has been done by using 25 years' annual data from 1994 to 2019. Findings: The result suggests that the fluctuation of Nepse Index in long run is strongly associated with broad money supply, interest rate, inflation, and exchange rate. Conclusion: Though Nepalese stock market is in primitive stage, broad money supply, interest rate, inflation and exchange rate are major factors affecting stock market price of Nepal. So, policies and strategies should be made and directed taking these in to consideration. Implication: The findings of research can be helpful to understand the behavior of Nepalese stock market and develop policies for market stabilization.

scholarly journals The Effects of Monetary Policy on Agricultural Output in Eswatini

2019 ◽  
pp. 94-99
Author(s):  
Mary S. Mashinini ◽  
Sotja G. Dlamini ◽  
Daniel V. Dlamini
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Agricultural Sector ◽  
Continuous Production ◽  
Annual Data ◽  
Agriculture Sector ◽  
Long Run

The agricultural sector in Eswatini is viewed as an engine to foster economic growth, reduce poverty and eradicate inequality. The purpose of the study was to investigate the effects of monetary policy on the agriculture Gross Domestic Product (GDP) in Eswatini using annual data for the period starting from 1980 to 2016. Using the Vector Error Correction model (VEC), the empirical results indicated that in the long run, agriculture GDP, exchange rate, interest rate, inflation, broad money supply, and agriculture credit have a negative effect on agriculture GDP in Eswatini. In the short run the study indicated that the variation in agriculture GDP is largely significant caused by the lagged agricultural GDP, interest rate, exchange rate as well as inflation. Money supply and agriculture credit contribute 0.46% and 0.55%, respectively to the variation in agricultural GDP. The study recommends that programs aimed at availing affordable credit to farmers should be prioritized to cushion the agriculture sector against adverse monetary policy shocks in the short to medium term, specifically interest rates, to ensure continuous production.

scholarly journals The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach

2010 ◽  
Vol 15 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Waliullah Waliullah ◽  
Mehmood Khan Kakar ◽  
Rehmatullah Kakar ◽  
Wakeel Khan
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Trade Balance ◽  
Exchange Rate Regime ◽  
Annual Data ◽  
Impulse Response Functions ◽  
Bounds Testing ◽  
Distributed Lag ◽  
Long Run

This article is an attempt to examine the short and long-run relationship between the trade balance, income, money supply, and real exchange rate in the case of Pakistan’s economy. Income and money variables are included in the model in order to examine the monetary and absorption approaches to the balance of payments, while the real exchange rate is used to evaluate the conventional approach of elasticities (Marshall Lerner condition). The bounds testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework is applied to annual data for the period 1970 to 2005 in order to investigate whether a long-run equilibrium relationship exists between the trade balance and its determinants. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. The result of the bounds test indicates that there is a stable long-run relationship between the trade balance and income, money supply, and exchange rate variables. The estimated results show that exchange rate depreciation is positively related to the trade balance in the long and short run, consistent with the Marshall Lerner condition. The results provide strong evidence that money supply and income play a strong role in determining the behavior of the trade balance. The exchange rate regime can help improve the trade balance but will have a weaker influence than growth and monetary policy.

scholarly journals Factors Affecting Kuala Lumpur Composite Index (KLCI) Stock Market Return in Malaysia

2016 ◽  
Vol 12 (1) ◽  
pp. 122 ◽  
Author(s):  
Uma Murthy ◽  
Paul Anthony ◽  
Rubana Vighnesvaran
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Composite Index ◽  
Oil Price ◽  
Series Data ◽  
Kuala Lumpur ◽  
Market Return ◽  
Stock Market Return

This paper studies the relationship between Kuala Lumpur Composite Index Stock Market Return with four macroeconomic determinants, namely interest rate, exchange rate, money supply and oil price from January 1997 to December 2015 on a monthly basis with a total of 228 observations. However, most of the studies are carried out in developed countries and large economic nations instead of in emerging markets such as Malaysia. Thus, this study aims to extend the existing studies to include the impact of several macroeconomics determinants namely interest rate, exchange rate, money supply and oil price on KLCI stock market return. This paper employed Multiple Linear Regression to examine the statistical relationship and to test the hypotheses. The data was analyzed using Statistical Package for Social Science, SPSS. For diagnostic checking, there is existence of autocorrelation problem which is typically found in time-series data.  Results indicated that there is negative relationship between exchange rate and stock market return and positive relationship between money supply and stock market return. Interest rate and oil price are found to have insignificant relationship with stock market return.

scholarly journals The Impact Of Budget Deficits On Macro-Economic Variables In The Nigerian Economy (1981 – 2012)

2014 ◽  
Vol 2 (11) ◽  
pp. 164-183
Author(s):  
B.O Osuka ◽  
Achinihu Joy Chioma
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Granger Causality ◽  
Budget Deficit ◽  
Nominal Exchange Rate ◽  
Budget Deficits ◽  
Economic Variables ◽  
Long Run ◽  
Johansen Cointegration Test ◽  
The Impact

This study examined the impact of budget deficits on macro-economic variables in the Nigerian economy for theperiod 1981-2012. This study sought to find out if there is a long-run relationship between budget deficits and other macro-economic variables in Nigeria. The study used the Augmented Dickey-Fuller (ADF) methods for finding out the presence of unit root in all variables and found that they are stationary at first differencing; they are 1(1). We also used Johansen Cointegration test to check for the cointegration of the variables and found that the variables in the study are all cointegrated of order one showing the presence of long-run relationship between budget deficits and our selected macro-economic variables ( GDP, interest rate, nominal exchange rate and inflation rate). The Granger Causality results reveal that there is a uni-directional Granger-causality between Budget deficits and GDP with GDP granger causing budget deficit. However, the test for causality showed that there exists no causality between deficits and interest rate, budget deficits and inflation and budget deficit and nominal exchange rate. We thereby concluded that budget deficits exert significant impact on the macro-economic performance of the Nigerian economy. The study recommend that since budget deficits could crowd-in investment through its reducing effects in interest rate, but emphasis should be placed on capital goods expenditure to make it have positive effect on GDP and thereby contribute to economic growth and development.

scholarly journals An Econometrics Analysis of the Impact Exchange Rate on Economic Growth of Nigeria

2021 ◽  
Vol 4 (3) ◽  
pp. 185-198
Author(s):  
Okosu Napoleon David
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Current Account ◽  
Series Data ◽  
Current Account Balance ◽  
National Account ◽  
Long Run ◽  
The Impact

The study interrogates the impact of exchange rate on the economic growth of Nigeria from 1981 to 2020 using quarterly time-series data from the Central Bank of Nigeria and the World Bank National Account. The dependent variable in the model was Real Gross Domestic Product (RGDP), and the independent variables were Exchange Rate (EXCHR), inflation (INFL), Interest Rate (INTR), Foreign Direct Investment (FDI), Broad Money Supply (M2) and Current Account Balance of Payment (CAB). The methodology employed was the Auto-Regressive Distributed Lag (ARDL) model which incorporates the Cointegration Bond test and Error-Correction Mechanism. The finding indicates that in the short run, EXCHR, CAB, M2 and FDI, had a positive impact on economic growth. The impact of EXCHR and CAB were significant on growth while that of M2 and FDI were insignificant to growth. However, INTR and INFL had a negative impact on economic growth with both variables being statistically significant. The bound test showed that there was a long-run relationship among the study variables, and the results from the long run reveal that the exchange rate has a positive and significant impact on economic growth. Inflation, Interest rate, FDI, Current Account Balance of Payment (CAB) and Broad Money Supply all have a positive and significant impact on economic growth. Based on the findings the study recommended that monetary authority should strictly monitor the operations of banks and other forex dealers with a view of ensuring unethical practices are adequately sanctioned to serve as a deterrent to others.

scholarly journals In Search of Exchange Rate Undershooting in Pakistan

2021 ◽  
Vol 2 (2) ◽  
pp. 141-160
Author(s):  
Wajiha Haq Haq ◽  
Iftikhar Hussain Adil
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Full Employment ◽  
Vector Autoregressive ◽  
Long Run ◽  
Supply Shock ◽  
Price Rigidities ◽  
Exchange Rate Overshooting ◽  
Insight Into

Exchange rate behaviour does not follow very obvious and predicted pattern. Many attempts have been made to predict its behaviour as much as possible. This research re-examines the Dornbusch’s model of exchange rate overshooting caused by price rigidities. Dornbusch’s assumption of full employment in economy has been violated in this research which creates the possibility of exchange rate undershooting. In response to positive monetary shock, interest rate decreases and exchange rate undershoots its long run equilibrium. This research explains the dynamics of anti-intuitive exchange rate undershooting. Apart from theoretical formations of exchange rate undershooting, this research also analyses Pakistani data for exchange rate undershooting or overshooting in response to increase in money supply. Quarterly data of twenty three years for exchange rate, nominal interest rate, price, real output and money have been taken and vector autoregressive technique has been used. Evidence of exchange rate undershooting in response to positive money supply shock was found. It also gives an important insight into policy making by identifying some probable behaviour of exchange rate.

scholarly journals Macroeconomic Influence on the Nepalese Stock Market

2019 ◽  
Vol 31 (1) ◽  
pp. 47-64
Author(s):  
Mukti Bahadur Khatri
Keyword(s):  
Foreign Direct Investment ◽  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Stock Prices ◽  
Economic Activity ◽  
Direct Investment ◽  
Negative Relationship ◽  
Short Run

This study examines the dynamic relationship among the stock market and macroeconomic factors such as nominal domestic variables (inflation, money supply, and interest rate), real economic activity (gross domestic product) and foreign variable (exchange rate and foreign direct investment) of Nepal. It has used Johansen and Juselius (1990) method of multivariate cointegration for the period Mid-July 1994 to Mid-July 2015. The finding of this study shows that the stock prices are positively and significantly related to money supply. Real economic activity and interest rate have insignificant and negative relationship with the stock prices. Similarly, foreign direct investment, inflation (CPI) and exchange rate with US dollar have a positive and insignificant relationship with the Nepalese stock market. Accordingly, the VEC estimates suggest that there is no significant effect of macroeconomic variables to the Nepalese stock price in the short run. In general, the presence of cointegration and causality suggest that Nepalese stock market is not efficient in both the short run and the long run.

scholarly journals Bank Performance versus Recession Indicators: A Linear Cointegration Approach

2017 ◽  
Vol 1 (1) ◽  
pp. 8-15
Author(s):  
Ashamu Sikiru Oyerinde
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Sample Size ◽  
Empirical Investigation ◽  
Rate Increase ◽  
Bank Performance ◽  
Annual Data ◽  
Increase With Increase ◽  
Long Run ◽  
Short Run

In this study, the researcher provides an empirical investigation of the nexus between banks’ performance and recession indicators. A sample size of 35 years was selected on annual data. A linear cointegration method was adopted after accounting for seasonality through logarithmic transformation. The results revealed that indicators of recession-exchange rate, inflation and interest rate maintain long run relationship with bank performance, and evidence of long run influence was established. Furthermore, we discover that within the purview of short run dynamic situation, inflation influences banks’ performance inversely, while exchange rate and interest rate increase with increase in banks’ performance. We therefore conclude that banks’ performance is driven by indicators of recession both in the short and in long run.

scholarly journals Re-Examining the Nexus between Exchange and Interest Rates in Nigeria

2018 ◽  
Vol 9 (6) ◽  
pp. 47-56 ◽  
Author(s):  
David Mautin Oke ◽  
Koye Gerry Bokana ◽  
Olatunji Abdul Shobande
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Control Measure ◽  
Long Run ◽  
Weak Exchange ◽  
Short Run ◽  
National Output ◽  
The Exchange Rate

Nigeria has experienced somersault of foreign exchange policies by the Central Bank. One policy concern in recent times is to have an appropriate target of the exchange and interest rates. Therefore, this paper seeks to provide a foundation for the targeting of an appropriate exchange and interest rates for the country. Using the Johansen Cointegration and Vector Error Correction Mechanism approaches, it specifically examines the relationships among Nigeria’s weak exchange rate, its local rate of interest and world interest rate. Contrary to many studies, a control measure involving inclusion of inflation, money supply and national output in the model is done. The analysis showed an equilibrium association between exchange rate and interest rate-cum-other variables and steady rectification of deviance from long-run stability over a sequence of incomplete short-run modifications. Increase in domestic and world interest rate, inflation, money supply and GDPat equilibrium would strengthen the exchange rate. Besides, further findings showed some bidirectional causal associations among the variables. By long-run implication, the targeting of an appropriate exchange rate in Nigeria requires a tightened monetary policy that is not inflation and growth biased. However, increase in world interest rate, money supply and inflation rate must be moderate in order not to worsen the exchange rate as suggested by the short-run result. 

scholarly journals Stock Market Reaction to Monetary Policy Modifications: Evidence from an Emergent Market

2021 ◽  
Vol 10 (3) ◽  
pp. 59
Author(s):  
Cordelia Onyinyechi Omodero ◽  
Dorcas Titilayo Adetula ◽  
Kingsley Adeyemo
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Market Reaction ◽  
Emerging Market ◽  
Harmful Effect ◽  
Stock Market Reaction ◽  
Stock Market Performance

This study evaluates the stock market reaction to monetary policy modifications in an emerging market using Nigeria as a case study.  Due to the crucial role the stock market plays in the global economy and finance, it becomes an attraction for most researchers and policymakers who try to find a basis for its smooth operation.  This study uses data that cover a period from 1998 to 2018 to establish what the position is in recent times empirically. The data are collected on all share index, money supply, interest rate and exchange rate. The multiple regression results provide evidence that the money supply has a significant favourable influence on the all-share index. In contrast, the interest rate has an immaterial harmful effect on the stock market output.  However, the result indicates that the exchange rate affects the stock market performance negatively, but the effect is insignificant. Based on these findings, the study suggests pilot test running of all monetary policy amendments by the monetary authority in the country before full implementation.  The government should encourage the CBN to cut down on interest rate and avoid all policies that will lead to a crash in the Nigerian stock market.   Received: 16 October 2020 / Accepted: 12 February 2021 / Published: 10 May 2021

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