Impact of Macroeconomic Variables on Stock Market Index in Nepal

Abstract

The objective of the study is to examine the impact of macroeconomic variables on stock market index in Nepal.The specific objective of the study is to find the trend of sampled macroeconomic variables: real gross domestic product, money supply, interest rate, inflation rate, exchange rate to stock market index? And to examine the impact of sampled macroeconomic variables on stock market index. The historical data are used for the period of 25 years of time starting from 1994 to 2018. The methodology of the study is descriptive and casual research design and ARDL techniques. The study is mainly concerned with the selected macroeconomic variable: stock market index, real gross domestic product, inflation rate, interest rate and broad money supply and its impact to the Stock market Index in Nepal. The major findings are: there is positive correlation between the NI and RGDP, NI and MS, & NI and ER. Further, there is there is the negative correlation between the MS and INTR, MS and INFR. Moreover there is evidence of cointegrating

relationship of stock market index, interest rate and inflation rate and the selected other variables like stock market index , real gross domestic production, money supply, interest rate, inflation rate, exchange rate .Conversely, there is no evidence of co-integrating relationship between real gross domestic product and the selected other variables. The conclusion of the thesis is that the existence of long run and short run relationship between the variables. Stock market index, and inflation rate has the long run relation with the significant coefficient. Money supply and exchange rate have the short run relationship. Real gross domestic production and inflation rate are not significant.